David Jones on cusp of sale to private equity Anchorage Capital

The 184-year-old up-market department store David Jones could soon have a new owner as speculation grows it will be sold to Anchorage Capital for as much as $150m.

Australia’s premier department store David Jones is about to get its third owner in eight years, as the gloss of being the nation’s leading luxury retailer starts to wear thin and the business is passed around like a discount chain from owner to owner, with it now to fall into the hands of private equity.

Speculation swept the market on Wednesday afternoon that the 184-year old up-market department store is about to be sold to Anchorage Capital for $125m to $150m as the retailer’s South African owners Woolworths Holdings sell out of the business and walk away from its disastrous experiment in Australian department stores.

But the Johannesberg-based Woolworths Holdings will under the deal with Anchorage maintain ownership of the flagship Melbourne property in Bourke Street for future sale, holding out hope of recouping some of the $2.1bn Woolworths Holdings paid for David Jones in 2014.

It was earlier revealed by DataRoom in The Australian that Woolworths Holdings was looking for a sale price of $250m which included the Bourke Street store.

Woolworths Holdings chief executive Roy Bagattini, who confirmed in August for the first time that Woolworths Holdings was actively considering selling David Jones, was in Australia over the weekend to oversee the final stages of the sale process to Anchorage. It is believed that other Woolworths Holdings executives have flown out of South Africa to come to Australia and close the deal with Anchorage, and that a sale deal could be announced as early as next week.

If Woolworths Holdings manages to sell David Jones it will mark a new owner for the venerable department store that was founded in Sydney in 1838, and its third owner since it was bought in a sharemarket takeover in 2014.

It will also end a disastrous experiment for Woolworths Holdings which bought David Jones for more than $2.1bn in 2014, along with full ownership of the Country Road Group, and that never paid off or matched the hopes of the new owners.

In the years following the acquisition, led then by former Woolworths Holdings CEO Ian Moir, there was more than $1bn in writedowns as the retailer struggled and then followed by costly own-goals such as a decision to open and expand dozens of David Jones foodhalls as well as a doomed joint venture, with petrol station BP to have David Jones food shops within the BP fuel stores. That food offer rung up losses of more than $15m a year before it was mostly shut down and was criticised by Mr Bagattini in 2021 as flawed from the outset and a “cut and paste” job from South Africa that didn’t work in Australia.

Woolworths Holdings were able to retrieve some of their lost value from buying the department store from property sales and in 2020 took out $510m from the sale of its flagship Castlereagh St property in Sydney to Charter Hall. David Jones also recently was able to send back to its South African headquarters a $90m special dividend.

Although the flagship David Jones department stores have improved their performance through Covid-19 with adjusted profits slightly rising, latest accounts lodged by the Australian holding company for David Jones showed its bottom line net profit was just $14.5m in 2022, from $84.3m in 2021 – an 82.7 per cent decline.

The mooted sale price of $125m to $150m reflects around 10 times earnings on its fiscal 2022 performance, but many industry analysts fear a looming downturn for the fashion and apparel sectors as the burden of higher interest rates, spiking energy bills and other cost of living expenses triggers a pull back in spending in the new year.

However this still leaves the company with large losses against its original purchase price of $2.1bn for David Jones eight years ago.

The sale process has been going on for some time and earlier this year, with Mr Bagattini flying in to Australia in March to hold discussions with banks in Sydney as the company mulled offloading the asset.

Visiting Australia for the first time as international borders reopened and pandemic restrictions eased, he spent most of his time in Sydney. The headquarters of David Jones in Australia is in Melbourne.

In August, Mr Bagattini confirmed for the first time that Woolworths Holdings was actively considering selling David Jones. Then in a note to shareholders in the retailer’s latest annual report, Mr Bagattini said that after years of investment, restructures and paying down debt, it was time to consider David Jones’ future.

“Whilst we will continue to refine our strategies, our focus is now primarily on execution, and we have already made demonstrable progress in this regard over the past year,” he wrote.

“David Jones is now debt free, self-funding, and has a clear road map to improving profitability, and as such, we are in a favourable position to explore all future options in respect of this business, and how best to further unlock value for the group and our shareholders,” he said in the Woolworths Holdings annual report.

The sale process for David Jones attracted some interest from private equity and as prospective buyers kicked the tyres of the business amid growing economic uncertainty and fears of a slowdown in discretionary spending later this year or in 2023.

Retail billionaire and Myer shareholder Solomon Lew also looked at the David Jones business during the sales process but walked away from discussions after studying the books.

It is believed current David Jones chief executive Scott Fyfe will stay on under new ownership to run the department store.

Once the sale of David Jones is finalised Woolworths Holdings will still have its Country Road Group arm in Australia which owns a stable of fashion outlets made up of Country Road, Witchery, Trenery, Mimco and Politix. Country Road Group accounts issued with the Australian Securities and Investments Commission revealed its net profit slumped 52 per cent to $43.24m in 2022. Its sales for the period were slightly up at $1.084bn.