DJs mulls new path for Country Road

South Africa-based Woolworths is understood to be coming under increasing pressure in the Australian retail market and is fending off suggestions it may be looking at options for a retreat.

The key problem for the group, which owns the department store David Jones and brands including Country Road, Trenery, Mimco, Politix and Witchery, is that there are few buyers for David Jones. Instead, Woolworths is being forced to navigate continued challenging conditions.

There have been ongoing suggestions among bankers that the business is being tested for a possible sale, which are consistently rebutted by the company.

One theory now circulating is that instead of offloading David Jones, the apparel business Country Road Group could be sold, perhaps through an initial public offering. This would be a big bet on the cycle, with retail conditions needing to improve next year.

There have even been suggestions that an investment bank may have done preliminary work on such a possibility, and writedowns in the value could make it easier to justify a sale.

A local spokesman for Woolworths has dismissed the speculation outright, saying that the South African retailer continues to invest heavily in both David Jones and the Country Road Group and a sale was not on the agenda.

Previously, investors saw Woolworths as being keen to keep its investments in Australia as a currency hedge.

But with the economy deteriorating in South Africa it may have to pay down debt.

Woolworths may be feeling the squeeze, with the South African rand under pressure despite Friday’s currency surge on the UK election outcome.

The Woolworths board is said to be deeply disappointed with the performance of its business in Australia and any funds that could be raised from a sale would help repair the balance sheet.

A spin-off of the more attractive Australian brands could have some interest.

Debt is not much of an issue for the overall Australian operations, but its losses are.

In the last few years, the company has rung up losses for David Jones of almost $1.3bn, plunging almost $500m into the red last financial year.

Costly impairments and writedowns are largely to blame for the poor results.

In August, the value of David Jones was written down by $437.4m and there have been additional provisions of about $22.4m relating to its leases.

Woolworths bought David Jones for $2.1bn in 2014, yet the department store value has now been reduced to $965m.

In August Woolworths Holdings released its results to the Johannesburg Stock Exchange, showing DJs’ operating profit for 2019 almost halved from $64m to $37m.

Sales slipped 0.8 per cent to $2.19bn.