David Jones, Country Road Group profit soars with rising sales

Shoppers head to David Jones, which was recently sold to private equity, and Country Road for new fashion and apparel, despite the challenging economic environment.

David Jones CEO Scott Fyfe will continue to lead David Jones under its new private equity owners and has witnessed sales growth in the department store since January. Aaron Francis / The Australian

Higher interest rates and the soaring cost of living have not stopped shoppers moderate their spending habits at upmarket department store David Jones and Country Road with the twin fashion retailers revealing strong sales growth since January.

At a time when many other discretionary retailers such as JB Hi-Fi, The Good Guys, Nick Scali and Harvey Norman are witnessing a sharp slowdown in the pace of sales after Christmas, the nation’s premier department store has so far been immune and generated double-digit growth.

Latest accounts for David Jones have revealed that for the first eight weeks of calendar 2023 sales lifted 13.6 per cent while at Country Road Group, which owns retail brands Country Road, Trenery, Witchery, Mimco and Politix, sales increased by 7.3 per cent.

Woolworths Holdings chief executive Roy Bagattini said the resilience of David Jones shoppers was somewhat counterintuitive and came despite the economic headwinds now lashing the discretionary retail sector.

“What you have seen in this level of resilience or this level buoyancy is somewhat counterintuitive to a lot of the macro-contextual indicators and the news that you see out there, whether it’s house prices, whether it’s record high interest rates or the levels of inflation,” said Mr Bagattini.

Woolworths South African company bought David Jones in 2014 for $2.1bn and in December agreed to sell it to private equity at a fire sale price.

He said David Jones shoppers were showing resilience and that he hadn’t seen as yet his customers trading down to cheaper fashion and apparel.

“You would expect these impacts to play through into a much more softening of demand or consumer demand, but we haven’t seen that, frankly, in the first period of our second half and obviously we are buoyed by that.”

This reporting season has seen many discretionary retailers issue trading updates that have revealed a slowing sales growth into the new year, driven by the nine months of interest rate hikes by the Reserve Bank and rising inflation that has crimped many household budgets.

Consumer electronics, furniture and white goods retailers such as JB Hi-Fi, Harvey Norman and Nick Scali have posted sharp falls in sales growth or new customer orders over January and February and have pointed to strains on the consumer discretionary budget.

However, David Jones and its stablemate fashion house Country Road Group have hit a purple patch in the midst of the softer consumer.

Late on Wednesday, David Jones reported its first half operating profit more than tripled as its sales lifted and profit margins were the highest since Woolworths Holdings bought it in 2014.

For the 26 weeks to December 25, turnover and concession sales increased by nearly 32 per cent and 28 per cent, respectively, on a comparable store basis, with its flagship and CBD stores performing ahead of expectations.

Gross profit margin improved by 140 basis points to 36.4 per cent and adjusted operating profit soared to $106.5m from $31m, returning an operating profit margin of 8.3 per cent, compared to 3.2 per cent in the prior period.

At Country Road Group, which Woolworths Holdings will retain ownership after David Jones is sold to private equity firm Anchorage Capital Partners, sales jumped nearly 26 per cent, with comparable sales up 27 per cent, underpinned by strong performances from the Country Road, Politix and Witchery brands in particular.

Adjusted operating profit increased by 94 per cent to $93.2m.

Mr Bagattini said he didn’t believe David Jones customers were totally immune to an economic downturn but sales might soften later this year as interest rate and cost of living pressures build.

He said he did anticipate a slowdown in consumer spending eventually this year.

“I do think we do still anticipate a level of softening to come through, we obviously look at things like tourism, etc but really that is only starting to come back.

“But overall we do expect there is a lag impact to some of these things to just start playing through and having a level of impact on consumer demand.

“Having said that, for both our businesses, the David Jones business and the Country Road business, there are still several, what we call ‘internal self help opportunities’ and so it’s quite easy for us to point to the macro context as a little bit of an alibi when our performance suffers - we are not quite in that situation yet.”

“There‘s enough opportunities for both of our teams in David Jones and Country Road Group to work on and what is important is just keeping focused on the strategies that both teams have got in place and executing those.”

Reflecting on the sale of David Jones, which will be finalised next month, he said the experience for Woolworths Holdings was a “painful journey” for the group and its shareholders.

“I think this is really the best outcome for us and David Jones.”

Under the sale deal to Anchorage, which it is believed priced David Jones at around $100m, Woolworths Holdings will retain ownership of the department store’s flagship building in Bourke Street, Melbourne, and Mr Bagattini said it was a good property to own.

“It is a great asset. It’s a great building to have and if you are a landlord, this is the type of building you would want to have as a landlord … and we have a good sense of its value and if we can realise in excess of that we will then look at selling it but we are in no rush to sell it.”