David Jones

By Dan Stratful

Friday 23rd March 2012

This week, retailer David Jones (ASX: DJS) reported its first half result for the six months to 28 January 2012 (1H), and the results were significantly lower, setting the retailer up for a hefty decline in full year net profit.

In the six months to 28 January 2012 (1H) DJS reported net profit of $85 million, down 20% on the previous corresponding period, while an 18% decrease in Earnings before Interest & Tax (EBIT) was reported.

DJS’s balance sheet strength allowed it to maintain an interim dividend which fell to 10.5c per share from 13.5c in the previous 1H. DJS made significant inroads in clearing excess inventory during the 1H based on a focused and effective merchandise management program.

Like all Australian retailers, DJS is facing tough trading conditions and the lower 1H result has led the retailer to release a Future Strategic Direction Plan which sees a 3 point strategy - Transforming into an Omni Channel Retailer; Growing the store network; and Strengthening the core business.

Trading conditions are expected to remain tough in the near term, and the cost of clearing excess inventory is expected to result in a decline in net profit of between 35% - 40% in the year to 30 July 2012.

DJS is in the process of upgrading its online sales presence so that Internet sales represent a greater proportion of sales than they currently do, and the company would be in much worse shape than it is now if it were not for its strong balance sheet position which sees only $100 million in long term net debt and gearing of just 9%.

Australian brokers have been quick to downgrade the stock after the 1H result to various ratings including sell or underperform. Whatever the terminology used, DJS and the entire Australian retail sector, is an area which investors should just plain AVOID.

Status: AVOID

DJS’s shares today traded at $2.40

For portfolio, sharemarket and fixed income enquires contact:
Dan Stratful at Investment Research Group (IRG)
Authorised Financial Adviser (AFA)
0800 437 8489, 09 304 0232, dan.stratful@irg.co.nz
**A disclosure statement is available, on request and free of charge.

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