Ferrets Stock to Watch: DAVID JONES LTD09:12, Friday, March 23,...

Ferrets Stock to Watch: DAVID JONES LTD
09:12, Friday, March 23, 2007

A NEW CARD FOR ALL SEASONS TO DRIVE PROFITS HIGHER

Sydney - Friday - March 23: (RWE Aust Business News)
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OVERVIEW
********

Over the years David Jones (ASX:DJS) lived by its card and
followed the principle of giving the customer the chance of returning
the goods or changing them if not satisfied.

Many families with growing children relied on this policy and
kept their department loyalty with DJs.

The David Jones Card is still a powerful weapon and unlike any
other card, because it rewards you with a range of exclusive benefits
and offers when you shop at David Jones.

What's more, if you apply online and are approved before April
18, you can have $25 credited to your new David Jones Card.

David Jones Corporate Services can supply David Jones Gift Cards
for corporate incentive, reward, loyalty, and promotional needs.

The company has decided to link up with a major financial
institution rather than go it alone in producing a general purpose card.

Directors say that 11 major banks are competing for the
company's business and they can see it is cheaper to outsource much of
the cards's operations rather than taking on the entire cost of running
the new division.

CEO Mark McInnes said store portfolio expansion and a DJ's
credit card, to be launched soon, are expected to be drivers of profits
from financial year 2009.

The card launch will probably be in August 2008.

He said the store will form an alliance with a financial
institution for the branded charge card.

"It offers superior and significant value to shareholders in
three ways: customer relationships, shareholder returns and risk
profile," the managing director declared.

In the interim report released on Wednesday, David Jones
reported a 30.4 per cent lift in underlying net profit to $71.1 million
for the half to January 27.

It was achieved from sales of $1.036 billion, up 7.6 per cent
the previous period last year.

Interim dividend is up 28.6 per cent at 9c a share fully franked
(previous 7c).

"Our underlying 1H07 profit is the highest PAT our company has
delivered in a six-month period since listing in 1995," Mr McInnes said.

"This is particularly pleasing because it reflects year-on-year
growth in profit and shareholder returns, since implementation of our
2003 Strategic Review.

"Our increased dividend to shareholders in 1H07 is testament to
the fact that we have implemented a strong business model that is
capable of delivering ongoing growth in shareholder returns throughout
the ups and downs of the economic cycle," Mr McInnes said.

The company's underlying earnings before interest and tax (EBIT)
for the first six months of FY07 was $110.6 million, up 36.4 per cent on
1H06.

The EBIT to sales ratio for 1H07 increased by 120bp to 10.7 per
cent in 1H07.

Mr McInnes said, "A key contributor to our company's 1H07 profit
result was the strong performance of our core department store business
which reported a 44.1 per cent increase in EBIT to $93.3 million in
1H07.

"Our Financial Services business also delivered a good result.
It reported a 6.1 per cent increase in EBIT from $16.3 million in 1H06
to $17.3 million in 1H07, despite an environment of higher funding
costs," Mr McInnes said.

Gross profit margin for the first half of FY07 was 39.5 per cent
(compared to 39 per cent in 1H06).

This represents consistent improvement in the company's gross
margin since implementation of the 2003 Strategic Review.

The total cost of doing business (CODB) percentage for 1H07 was
30.5 per cent, an improvement of 70 basis points on the CODB percentage
in 1H06 (31.2 per cent).

"This excellent result reflects the continuing implementation
of our cost efficiency program," the CEO declared.

The company continued its track record of tight stock
management, with inventory levels being flat on last year, reflecting
strong sales demand and productivity.

Aged stock inventory levels for the group were again maintained
below 5 per cent of total inventory.

Since the sale of the Myer department store business to the
Newbridge Private Equity Consortium in mid 2006, the Australian
department store sector has undergone significant restructure.

As a result of the restructure, opportunities have arisen and
continue to arise, that David Jones has been able to capitalise on, most
notably through the expansion of its store and brand portfolios.

"In recent years we have seen a reinvigoration of the Australian
department store sector - in particular its relevance and prominence to
consumers has been enhanced," Mr McInnes said.

"The new ownership of Myer has enhanced this reinvigoration and
has resulted in more rational decision making than was previously the
case.

"There will be medium to long-term benefits flowing to
shareholders from the industry restructure from areas like media,
supplier terms and the redevelopment of Myer Melbourne, as well as
ongoing brand and store expansion opportunities," Mr McInnes said.

SHARE PRICE MOVEMENTS
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Shares of David Jones yesterday gained 17c to $4.62. Rolling
high for the year is $4.94 and low $3.33. Dividend is 18c to yield 3.9
per cent. Earnings per share is 44.6c and p/e ration 10.36. The company
has 447.7 million shares on issue with a market capital of $2 billion.

In the interim report, Mr McInnes dwells significantly on
guidance figures.

"Due to the fact that we will be cycling a high base in 2H07, we
think that it is prudent to reaffirm the guidance we gave on 14 February
2007 of 0 per cent-1 per cent LFL sales growth.

"We also reaffirm our guidance for underlying PAT growth in 2H07
of 8.5 per cent-13.5 per cent.

"Although we have had an encouraging start to the winter season,
we are a trading business and as such we prefer to trade through a
significant part of 2H07 before updating our existing guidance.

"We will provide an update at our 3Q07 sales announcement in May
on the trading environment," Mr McInnes said.

The company's new-store program is on track with the Burwood
(NSW) store due to open in early May.

Strategic refurbishments are an integral part of sales growth
and brand positioning.

The Bourke Street Cosmetics and Accessories Hall has delivered
an outstanding performance since its launch in late October.

It has enhanced David Jones's brand positioning in Melbourne and
given the company a stronger market position, which will be further
enhanced by the opening of the new Doncaster and Fountaingate stores in
the next few years.

The refurbishment of the Market St ground floor menswear is
progressing well and is expected to be completed in early April.

Mr McInnes said Access Economics is forecasting that in calendar
2007 the economy will continue to provide a positive environment for
consumer spending.

"This will coincide with the full-year trading benefit from the
Burwood store, the company opening its new Chermside store (August 2007)
and its new QueensPlaza store (February 2008) and as such establishes a
strong platform for ongoing revenue growth," he said.

"As a result of the expected sales environment, our new stores,
our proven customer model, continued growth in our financial services
business and ongoing cost efficiencies, we reiterate our confidence that
our business model will enable us to continue to deliver 5 per cent-10
per cent PAT growth (excluding the positive benefit to PAT in FY08
following the conversion of the RPS on 1/8/07) and attractive dividends
for shareholders in FY08," Mr McInnes declared.

Looking forward to the long term, the company is currently
working on its FY09-FY12 strategy.

David Jones sees significant longer-term growth opportunities in
the key areas of:

* Store portfolio expansion;

* Financial services - through the introduction of a general
purpose card;

* Ongoing benefits arising from the recent industry restructure;
and

* Core business expansion through key refurbishments, ongoing
brand introduction and continuation of the cost efficiency program to
reduce CODB.

"We believe our company has a bright future with many
opportunities available to it," Mr McInnes said.

"We have a proven business model, strong cashflows, a productive
balance sheet (now that our flagship Sydney and Melbourne CBD properties
are fully owned) and a strong management team.

"We are well positioned to continue our track record since 2003
of delivering year-on-year growth in shareholder returns."

BACKGROUND
**********

David Jones Ltd rejoined the Australian sharemarket list on
November 27, 1995.

The company was previously part of the Adelaide Steamship group
under the control of John Spalvins.

After Adelaide Steam finished on the rocks, the company was
restructured and refloated.

David Jones operates 35 department stores and two warehouses
around the country at the top end of the market in terms of brands and
products.

The company also concentrates on exclusive lines found only in
DJ stores.

David Jones has focused on efficiency and store refurbishment
which is close to completion.

Since December 2005, the company has pursued a capital
management plan, deciding to unwind the sale and leaseback transaction
by repurchasing its flagship Sydney and Melbourne CBD stores.

It also includes the David Jones store credit card, a key
contributor to DJ's performance.

A number of brand-name products have been signed up to return to
DJ stores' distribution agreements including Country Road, which will be
back with David Jones this month.

Other well-known brands popped up last year including Tigerlily,
Simone, Perele, Sara, Luxaflex and Mambo.

Exclusivity agreements have been signed with Saba, F CUK and
Witchery.

Meanwhile David Jones has decided to outsource its renowned
credit card system.

At present the company offers a credit card and the company has
carried its own liabilities.

ENDS

Copyright © 2007 RWE Australian Business News. All rights reserved.