David Jones warns of tough times ahead as profit halves

The South African company that owns department store David Jones has warned that the tough trading conditions in Australia.

David Jones’s operating profit for 2019 almost halved from $64m to $37m while sales slipped 0.8pc to $2.19 billion. Picture: Getty Images

The South African company that owns up-market department store David Jones has warned that the tough trading conditions in Australia, which its chief executive recently described as being mired in a “retail recession”, will continue into the new financial year as margins are crunched by further discounting and price wars.

The woeful retail conditions ravaged David Jones’s operating profit for 2019, which almost halved from $64 million to $37m. Sales slipped 0.8 per cent to $2.19 billion.

However, Woolworths Holdings chief executive Ian Moir — who remains in place as acting boss of David Jones and will now devote more of his time in Australia to turn around the department store — believes the worst is now behind it. Next year the group completes its massive $400m refurbishment of the flagship David Jones store in Elizabeth Street, Sydney which is expected to return almost $50m in profits to the chain.

“I am going to spend more of my time there, I really want to see that transformation complete and I think it can add more value there than anywhere else in the business,’’ Mr Moir told The Australian last night after Woolworths released its full-year results for David Jones and Country Road Group.

He said despite the tough trading conditions David Jones could still thrive. “I think we can because we are differentiated, there is focus on the top end customer, there is focus on being exclusive, having exclusive brands at the very top end … taking the cost base of the business down, having a great online business.

“I think we can outperform the market, we have got to start getting the benefit of all the money we have spent on systems, stores and people … it has been a really tough three years, but we will get through it.’’

Woolworths said the range of economic headwinds that was now buffeting the David Jones retail chain had meant the department store had fallen short of expectations in 2019. Earlier this month the bruises of that challenging environment were shown in the David Jones business, when Woolworths announced it would be forced to write down the chain’s by $437.4m. Woolworths Holdings bought David Jones for $2.1bn in 2014 but has now burned through more than half of that value, with the valuation of the department store now reduced to $965m.

Yesterday Woolworths issued its full-year results, reporting that David Jones experienced peak disruption from the refurbishment of its flagship Sydney store in Elizabeth Street, impacting their sales by roughly 3 per cent in the second half of the year.

Turnover and concession sales declined by 0.8 per cent for the year, with comparable store sales 0.1 per cent lower. The Elizabeth Street store refurbishment is on track to be completed by the end of the third quarter of the 2020 financial year, Woolworths Holdings said.

A strategic review of the David Jones store portfolio also identified stores with onerous leases, resulting in an additional provision of $22.4m.

“The impairment reflects the economic headwinds and the accelerating structural changes affecting the Australian retail sector as well as the performance of the business, which has fallen short of expectations,’’ the company said in a statement to the Johannesburg Stock Exchange.

“The Woolworths Holdings board believes that the valuation of David Jones is realistic and reflective of its prospects. The board is focused on the turnaround of David Jones and is ensuring that the business effects the necessary actions.” To help that improvement, Mr Moir will spend more time in Australia as he runs David Jones following the recent departure of its former CEO.

David Jones has seen significant growth in online sales of 46.8 per cent, now contributing 7.7 per cent to total sales. At its Country Road Group, the business that houses fashion labels Country Road, Mimco, Trenery Politix and Witchery, sales for the year grew by 0.5 per cent, while comparable store sales were 0.6 per cent lower.