David Jones (DJS) delivered an interim profit of $85m down 20% and a full year profit warning of a drop of 35%-40%. The market was disappointed by this guidance as it implied a significant decline in 2nd H12 profit of 61% to 75%. •BA-Merrill Lynch – Underperform - target 220c - interim earnings were broadly in line but outlook commentary was significantly worse. A worse case valuation for DJS remains around $2.00 per share, so despite changes to forecasts there is no adjustment to BA-ML's price target. •Citi – Neutral – target 230c - new strategy of investing in online, staff service, and new stores is a positive for protecting sales, but will have a heavy impact on earnings in the interim. The broker does not see any short term restoration of profitability. •Deutsche – Downgrade to Sell – target 220c from 280c - result was itself not as significant as the big guidance downgrade. The new strategy is positive but highlights the waste of investment opportunity and will result in a flat earnings outlook in the shadow of execution risk. •JP Morgan – Underweight – target 179c - result was as they broker expected but the new strategy highlights structural challenges and is not going to get better any time soon. •RBS – Downgrade to Sell – target 192c from 240c - earnings were weak and on the back of revised guidance RBS has lowered its earnings forecasts and target price. •Goldman Sachs – Sell – target 193c - DJS has provided investors with the broad strategies it will implement moving forward. However, there was a lack of clarity around the significant step-up in costs. Given significant headwinds in FY13E and FY14E, the earnings outlook at this stage looks flat
DJS Price at posting:
$2.39 Sentiment: None Disclosure: Not Held
