Ferret's Stock to Watch: DAVID JONES LIMITED 08:15, Wednesday, 23 March 2005
DEPARTMENT STORE RESULTS SHOW LOCAL STRATEGY WORKS
Sydney - Wednesday - March 23: (RWE Aust Business News) *******************************************************
OVERVIEW ********
There has been a wave of self examination in department store strategy after the visit to Australia of Victorio Radice, the man who put London's Selfridges back on the map and turned it into a profitable operation.
In his own way, David Jones's chief executive Mark McInnes has achieved a solid result for the December half year, yesterday reporting a rise of 21.9 per cent to $52.89 million in the 26 weeks to January 29 from $43.39 million for the first half of last year.
But revenues rose a modest 5.9 per cent to $1.01 billion from $956.26 million.
Basic earnings per share was 12.1c, up from 9.9c.
Interim dividend has been increased from 5c to 6c, fully franked, for shareholders registered on April 4.
Mr McInnes said, "Our 1H05 profit result is the strongest first-half profit result that our company has reported since listing in 1995.
"I am pleased to report that to date we have not only delivered on, but also outperformed, our strategic review targets, in particular in the area of cost efficiencies.
"We are cognisant, however, that since the announcement of the strategic review we have experienced favourable retail conditions and that the true test of our business model will be to trade through the expected slowdown in consumer spending in 2H05 and FY06.
"We are confident that our business model will enable us to outperform the economic cycle, even in times of slower revenue growth."
Mr McInnes said the company's confidence stemmed from its cost efficiencies program, credit card business and tight inventory management.
He believed this would, in the absence of any new developments, enable David Jones to deliver 5 per cent to 10 per cent net profit growth and attractive dividends in the 2005 to 2008 years, regardless of the expected slowdown in consumer spending in 2005 and 2006.
Mr McInnes already has a ready made strategy such as Radice, used in Selfridges, that is to entice customers to think of DJs as a place not a product.
It's the place to eat or drink coffee and admire the merchandise on the ground floor of the Elizabeth Street store.
This was its great attraction in the second half of the 20th century.
A Radice rule is that exclusivity of clothing items is out because the more people use a particular product the better it sells, providing the store has the top of the range and the environment to sell it is right.
But DJs does not appear to agree to this concept because it now has a list of exclusive supply deals with Lisa Ho, Sass&Bide, Saba and Witchery.
Myer itself which is struggling could only muster a 2.4 per cent lift in earnings from its 61 stores.
Both David Jones and Myer support expensive extravaganzas like the Myer Winter Fashion show which are anathema to Mr Radice.
His idea of a sale is where a customer picks up a real bargain and knows it is a real event.
SHARE PRICE MOVEMENTS *********************
Shares of David Jones yesterday rose 13c to $2.08. Rolling high for the year has been $3.40 and low $1.52. Dividend is 11c to yield a handy 5.29 per cent.
The company has decided to retain and restructure its shareholder rewards loyalty program which involves a two-staged process.
The $50 annual fee will be eliminated immediately and from July 1 the program will:
* adopt a flat 3 per cent discount rate for all merchandise categories. Under the current program a 7.5 per cent discount rate applies to Apparel, Cosmetics and Homewares, and a 3 per cent discount applies to all Electrical, Furniture, Home-office and Food categories;
* reduce the minimum shareholding to participate in the program from 2,000 to 1,500 ordinary David Jones shares;
* The restructure is expected to deliver net cost savings of $2.5 to $3.5 million a year.
BACKGROUND **********
The name of David Jones has been synonymous with upmarket retailing for 166 years.
The company boasts it is not only Australia's oldest department store, but the oldest department store in the world still trading under its original name.
The family lost control in the 1980s when the company came under the control of the Adelaide Steamship group which later crashed, taking DJs with it.
John Spalvins, who controlled AdSteam at the time, used to take great delight in wandering through the dazzling ground floor at the Elizabeth Street store.
Charles Lloyd Jones was the last member of the family on the board before it fell into outside hands.
His brother David, the real retailer of the family, died prematurely of cancer.
Just 50 years after the founding of the NSW colony, Mr David Jones, a Welsh-born immigrant, opened "large and commodious premises" on the corner of George and Barrack Streets on May 24, 1838.
His mission: to sell "the best and most exclusive goods" and to carry "a stock that embraces the everyday wants of mankind at large."
This has been the company's objective right up to the present day.
No other Australian store has come near DJs for its upmarket image that could claim Queen Elizabeth paid the Elizabeth Street store a visit in 1954.
This image has been preserved right through to today despite the company being many times on the brink.
David Jones came out of the AdSteam disaster in November 1995 when it was restructured and returned to the ASX list.
It still retains that niche though of being exclusive in its 36 stores across the country.
However, its big CBD stores were sold and re-leased at a time when the company needed working capital.
ENDS
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I don't hold DJS
DJS Price at posting:
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