ferret's stock to watch: david jones limited

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)
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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