David Jones woes deepen as sales slump extends into 2019

David Jones’ earnings have slumped by nearly one third as sales weaken further post Christmas amid abrupt CEO exit.

A customer walks past David Jones’s flagship Bourke Street Mall store in Melbourne. Picture: Bloomberg

Earnings at the nation’s leading up-market department store David Jones have slumped by nearly one third as the retailer is hit with a wave of challenges to its business including heavy discounting in the sector, consumers pulling back on their spending and an Australian economy bedevilled with flat wages growth.

And that pain has spilt into 2019 with David Jones sales further eroding since Christmas to be down more than 3 per cent.

Woolworths Holdings, the South African company that owns department store David Jones, has warned that despite positive economic settings in Australian led by low interest rates and employment growth, consumer spending was stubbornly depressed by high levels of debt, a cooling housing market and low wages growth.

It added that its David Jones retail chain was feeling the pressure of a highly competitive fashion market driven by promotions and discounts while there was also a reduction in foot traffic at shopping centres particularly in the last weeks leading up to Christmas.

That downbeat assessment has continued since Christmas with David Jones management warning this afternoon that 2019 was looking to be tarnished by a softer consumer environment which was likely to persist.

For the first eight weeks of the second half, Woolworths Holdings revealed the extent of that persistent downturn with David Jones sales down 3.1 per cent and Country Road Group up 1.7 per cent.

Woolworths Holdings has released its latest financial results for the six months to December 23, revealing at its David Jones business that total sales were up 1 per cent to $1.112 billion with sales performance weakening in the last six weeks of the second quarter. Same store sales growth at David Jones was 0.9 per cent as growth from new stores was offset by sales disruption by the major refurbishment of its flagship store in Elizabeth Street, Sydney.

Adjusted operating profit for David Jones slumped by 28.8 per cent to $47 million while operating profit before strategic initiatives fell 10.7 per cent to $75m.

The company’s Country Road Group, which includes brands Country Road, Politix, Witchery and Mimco, saw sales rise 2.3 per cent to $555m and like for like sales lift 0.5 per cent. The division’s earnings rose 2.6 per cent to $80m.

David Jones has had a rough 2019, and it’s still only February. Earlier this month the department store lost its fourth chief executive in five years when David Thomas — who had only been running the company for 18 months — quit under mysterious circumstances. It was later revealed he was the subject of a complaint of discrimination from a staff member and although an independent investigation by an external law firm found no evidence to the claims he still departed the business.

Then, a week later, Woolworths Holdings’ two Australian-based directors, former Westpac boss Gail Kelly and Nine Network director Patrick Allaway, resigned from the board despite just being re-elected as directors last year. No explanation was given for their exit.

In January David Jones testified to the slowdown across Australia’s fashion and apparel retail sectors, revealing that total sales for the 26 weeks to December 23 had grown by 1 per cent or 0.9 per cent on a like for like basis.

This represents a sharp slowdown from the much stronger 2.9 per cent sales growth the department store enjoyed between the new financial year and November last year, with its like for like sales up until November growing by a respectable 2.4 per cent. It means that in the lead up to Christmas its sales momentum had almost grounded to a halt.

Last year Woolworths Holdings revealed it would be forced to book a $712m impairment charge against the carrying value of David Jones as the nation’s retail downturn savages sales and earnings. The big hit to David Jones’ balance sheet represents a large slice of the $2.2 billion South African retailer Woolworths Holdings paid for the retailer more than three years ago.