Local accounts paint bleak picture at up-for-sale David Jones

The department store’s South African owners said operating profits were down just 0.6 per cent. Documents lodged in Australia show a much poorer result this year.

Woolworths is now selling David Jones at a time when many believe discretionary retail is at the peak of the cycle. Picture: Gaye Gerard

David Jones has recorded a significant slump in profits, with new accounts showing flatlining sales at the same time as its owner, South Africa’s Woolworths Holdings, attempts to offload the upmarket department store operator.

In August, the Johanesburg-listed Woolworths reported adjusted operating profits at David Jones had declined by 0.6 per cent to $83.7m for the 2022 financial year.

But accounts now lodged with the corporate regulator by Osiris Holdings, the local vehicle which houses the 184-year-old department store, paints a very different picture. Net profits, the accounts show, collapsed to just $14.5m in 2022 from $84.3m in 2021 – an 82.7 per cent decline.

According to the Osiris accounts, revenue has also stalled, reported around $2.06bn for 2022 against $2.11bn in 2021.

David Jones booked lower earnings from its American Express credit card agreement – once a key driver of earnings – with its profit share dropping to nearly $21m from $26.8m in 2021.

It was a similar story at Country Road Group, a vehicle also owned by Woolworths which houses the Country Road, Trenery, Mimco, Witchery and Politix brands.

David Jones store in the CBD Sydney. Picture: Gaye Gerard

In August, Woolworths said Country Road Group’s full year adjusted operating profit had fallen 22.3 per cent lower to $120.2m. However, Country Road Group accounts issued with the Australian Securities and Investments Commission reveal net profit had actually slumped 52 per cent to $43.24m.

The profit slide at David Jones comes as Woolworths attempts to sell the company after buying it for more than $2.1bn in 2014. The Australian’s DataRoom column reported on Monday that Anchorage Capital Partners, a private equity firm which is considering the acquisition, was planning to outlay about $200m as it carries out exclusive due diligence.

Given David Jones owns its Melbourne store on Bourke Street, which a year ago was estimated to be worth about $250m alone, the sale price of $200m, as suggested by sources, would value the operating department store business at less than zero.

In 2020, David Jones reaped about $510m from the sale of its flagship Sydney property to Charter Hall.

In August, Woolworths chief executive Roy Bagattini admitted for the first time after a year of speculation that it was now actively considering a sale of David Jones.

“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,” Mr Bagattini told analysts in South Africa in relation to the David Jones business.

Under Mr Bagattini, David Jones has returned to profitability, partly driven by hundreds of millions of dollars in impairments and writedowns to the business.

But Woolworths is now selling David Jones at a time when many believe discretionary retail is at the peak of the cycle. Difficult conditions are expected in 2023 as the impact of rising interest rates and higher inflation hits consumers.

David Jones chief executive Scott Fyfe told The Australian on Tuesday that the company had delivered a strong profit and was a stabilised, self-funding business.

“Fiscal 2022 was a tale of two halves – with the first half affected substantially by lockdown restrictions across Australia, and the second half showing an even stronger than forecast rebound. Most importantly, David Jones is now a profitable and self-funding business,” Mr Fyfe said.

Although the first half was impacted by lockdown restrictions ultimately resulting in a full year sales decline of 2.6 per cent, these results showed David Jones’ management had successfully stabilised the business, he added.

“With a strong start to the first quarter of 2023, David Jones is well positioned to maximise sales and profitability in the year ahead and our customers are enjoying our improved assortment and experiences in store. We are well positioned to be a leader in omnichannel retailing in Australia.”