David Jones profit slumps by a third amid tough retail conditions

David Jones’ South African owners have sheeted poor first-half performance back to rising debt levels and cautious shoppers.

A David Jones store in Canberra on Boxing Day. (AAP Image/ Brenton Edwards)

Up-market department store David Jones is the latest victim of some of the toughest retail conditions in decades with its December half profit slumping by one third and its South African owners blaming rising household debt in Australia and a cautious shopper hurting its performance.

But there were also some self-inflicted errors, as Woolworths Holdings was slow to push through new initiatives and badly handled other retail strategies.

South Africa’s Woolworths Holdings has confirmed a $712.5 million writedown against its Australian department store David Jones in the wake of a poor macro-economic environment and a disappointing and delayed execution of key initiatives, however its Country Road business did achieve a performance above market expectations.

It has called out high levels of debt in Australia and soft consumer sentiment.

Reporting its results tonight, Woolworths Holdings testified to the tough retail conditions in Australia which have also hurt other fashion chains including its arch rival, the nation’s biggest department store Myer.

“Growth hampered by muted consumer sentiment, low wage growth, underemployment and high levels of indebtedness,’’ Woolworths Holdings said in a briefing to shareholders and analysts.

“Apparel sector continued to be constrained, highly competitive and promotionally driven.’’

It said that David Jones, bought for $2.1 billion in 2014, posted a 29.4 per cent fall in operating profit to $84 million for the December half. Adjusted interim net profit fell 37.7 per cent to $66 million. Sales were weaker, falling to $1.1 billion.

David Jones reported total sales 3.8 per cent lower for the 26 weeks to December 25, 2017, with comparable store sales 3.3 per cent weaker. There was an improvement in the last 6 weeks into Christmas, with same store sales up 0.6 per cent. The department store recorded strong online sales growth of 21 per cent, reflecting around 6 per cent of total sales in the second quarter.

Gross profit margin for David Jones increased by 1.2 per cent to 40.7 per cent due to reduced markdown and promotional activity.

At Country Road sales lifted to $542 million as gross profit rose 10.6 per cent to $345 million and adjusted operating profit rose 15.7 per cent to $59 million for the period.

Country Road Group, which is made up of chains Country Road, Trenery, Witchery, Mimco and Politix, reported a 5.2 per cent lift in sales with comparable sales 1 per cent lower excluding Politix which was acquired in November 2016.

Gross profit margin was up 3.1 per cent, due to more full priced sales and sourcing gains. Online sales were up 28 per cent and now make up more than 18 per cent of Australasian sales.