David Jones posts slight profit fall as owner mulls potential sale

Woolworths Holdings, the South African owner of luxury department store David Jones, has revealed for the first time that it is actively considering the sale of the 184-year-old retailer.

David Jones has emerged from 2022 with only a slight fall in earnings and sales as it saw a rebound in trading in the second half. Picture: NCA NewsWire / Gaye Gerard

Woolworths Holdings, the South African owner of luxury department store David Jones, has confirmed for the first time that it is actively considering the sale of the 184-year-old retailer.

Woolworths, which acquired the retailer for $2.1bn in 2014, has previously distanced itself from reports that it was mulling a sale and had held discussions with interested parties and investment banks as part of the process.

The Australian first reported a possible sale process in April. Despite denials, billionaire Solomon Lew later confirmed he had held discussions with the Johannesburg-listed Woolworths but later walked away from the deal.

“Having successfully executed against our balance sheet and income statement priorities, we are now evaluating all possible ­options to unlocking value for Woolworths Holdings and its shareholders,” Woolworths chief executive Roy Bagattini told analysts in South Africa in relation to the David Jones business.

The company’s Country Road Group business would “now pursue its own growth ambitions”, a slide shown to the analysts read.

That ambition was to “build on Country Road brand success and replicate it across the portfolio”, the presentation said.

Scott Fyfe at the David Jones head office in Melbourne on Wednesday. ‘Customers are returning to stores, which is great.’ Picture: NCA NewsWire / Luis Enrique Ascui

On Wednesday, The Australian’s Margin Call column reported that Woolworths Holdings had appointed Goldman Sachs to offload its ownership of David Jones, with at least two buyers said to be eyeing a deal.

David Jones chief executive Scott Fyfe on Wednesday declined to comment on moves by Woolworths to seek parties interested in buying the company.

Mr Fyfe, who was appointed chief executive 2020, said he was focused on increasing sales, although he confirmed that Mr ­Bagattini had visited Australia twice in the past four months.

Latest accounts lodged by Woolworths for its Australian businesses, which include David Jones and Country Road, also show that David Jones had repatriated $90m to its parent company in the 12 months to June 30, with another $50m to be sent soon.

Mr Fyfe said David Jones did not need the funds to reinvest in its stores or business as it was now “self funding”.

The dividend will help ease some of the losses Woolworths Holdings has made on its purchase of David Jones which has been a disappointing investment.

“No, I haven’t been talking to merchant bankers,” Mr Scott said on Wednesday after Woolworths Holdings reported that David Jones’s reported adjusted operating profit declined by 0.6 per cent to $83.7m.

In the financial year, sales at David Jones declined by 2.6 per cent and by 2.5 per cent in comparable stores, as sale fell to $2.058bn in 2022, from $2.112bn, but increased by 4.3 per cent in the second half after the easing of lockdown restrictions and a rebound in trading.

Mr Fyfe said he was seeing some “really optimistic signs” among consumers as they returned to shopping in department stores in the wake of a receding threat from Covid-19 and the end of lockdowns.

David Jones has emerged from 2022 with only a slight dip in its full-year profit.

“Clearly there are some headwinds in the market, but what we are seeing is customers are returning to stores, which is great,” Mr Fyfe said.

“We’ve actually seen that continue through July and August, which is really encouraging for us as we enter into peak (trading).

“Consumers are very happy to shop with us online, which is great. We’ve established a really great and profitable business online and we’re really optimistic about what is ahead.

“We’ve got events going on in stores, new experiences … and these are all reasons to come and shop at David Jones, which is really important for the consumer who has had a tough and challenging last two years.”

At its Country Road Group arm, which includes Country Road, Trenery, Mimco, Witchery and Politix, sales increased by 9 per cent and by 11.3 per cent in comparable stores for the second half, resulting in positive full-year sales growth of 3.1 per cent and 4 per cent, respectively.

However, profitability at Country Road Group sank.

For the full year, adjusted operating profit was 22.3 per cent lower at $120.2m. Adjusted operating profit in the second half increased by 18.6 per cent to $72.1m, again underlining the vastly improved trading conditions as Covid-19 fears waned in the 022 calendar year.

The upbeat trading in the June half from David Jones was mirrored in a recent trading update from arch rival Myer, which in July showed it had emerged from the Omicron wave of Covid-19, lockdowns and sinking consumer confidence with its strongest ­financial state for years and its full-year net profit for 2022 forecast to double.