No real worries about slowing retail sales, rising interest rates or a sluggish economy from retailer David Jones which yesterday revealed its long awaited update of its corporate strategy for the four years starting 2009.
And it’s not rocket science: lift profit after tax by 5-10% year from 2009 through 2012 by opening 4-8 new stores in high value areas and revamping 11-14 more stores over the period covered by the plan.
It’s simple and David Jones has already delivered on, and exceeded, the present plan which was introduced to stabilise and then grow the company after a near death experience five years or so ago.
It confirmed it would launch its DJs branded American Express card by Christmas this year.
And it says it will continue to do what it has been doing for the past four years" lifting earnings and cutting costs of doing business".
David Jones reckons it can fund $400 million in capital investment over the four year cycle without adding to debt.
David Jones CEO Mark McInnes said in a statement to the ASX that the company’s new store opening strategy would seek to secure a presence in high-value shopping centres with large catchments and a strong demographic profile where David Jones is not currently represented.
"Each new store must meet our internal financial benchmarks of at least $5 million store contribution by year 2, which is broadly equivalent to at least $40 million of sales, and perform in the top half of our Store portfolio," he said.
Locations for new store expansion included Doncaster in eastern Melbourne (to open in the first half of 2009), Claremont in Perth (to open in 2011, replacing an existing store), three more stores in final lease negotiations (two scheduled to open in 2011 and a third in 2012), and up to five more currently in active negotiation (two scheduled to open for 2011 and three in 2012).
That’s a fairly ambitious plan but the part that will see up to 14 existing stories revamped could be a major contributor as the renovation costs are always lower than new stores and there’s usually a surge in sales from the upgraded store.
It’s a strategy being used extensively in the US by Wal Mart, and Woolworths plans a significant store upgrade strategy this year and rolling into future years.
The plan was revealed only hours before the Reserve Bank delivered another 0.25% rate rise (but signalled that it would be leaving rates steady for some time from now on).
Mr McInnes said in the statement that ”Access Economics is forecasting a slowdown in consumer spending over the next 18-month period and based on this forecast, we anticipate total sales growth for FY09 and FY10 to be between 1-3% as we enter a phase of softer consumer spending”.
He said David Jones expected same store sales growth at stores open at least a year to be flat or negative for two or three consecutive quarters.
"Having said that, we are confident that we have sufficient cost, margin and growth initiatives to deliver profit after tax and dividend growth throughout the cycle,” he said.
"This is a company transforming transaction for David Jones that will deliver significant earnings growth and value to shareholders over time,” Mr McInnes said.
Besides opening up to eight new stores and refurbishing up to 14 stores by the end of the 2012 financial year, the company is looking to cut its cost of doing business by 0.80% in the same time. It says it has identified 74 ways to reduce costs including upgrading lighting, air-conditioning and waste management systems to save $2 million a year on energy costs.
"The economic cycle is a reality in our business,” Mr McInnes said. ”Our fundamental premise is that we can deliver profit after tax and dividend growth through the cycle. Each new store lease must be on a commercial and sustainable basis.”
David Jones shares were up 13c to $4.02.
But there was a bit more scepticism from investors for plans by a second retailer to expanded its store building plans.
After adding 10c on the news, JB Hi Fi shares ended 3c lower at $10.03, continuing the run of market outs for the company since it revealed solid profits for the December half and forecast more of the same last month. The shares fell sharply and have been weak ever since.
JB Hi Fi and its direct competitor Harvey Norman, are thought to be among those retailers which will suffer from the Reserve Bank’s tighter monetary policy and its rising level of interest rates.
Harvey Norman shares took a pounding yesterday, falling 37c to $4.00, the lowest level since January last year. News of the slowdown in retail sales in January didn’t help. HVN reported record first half earnings for December but revealed a slowdown in the growth rate for top line and same store sales in the seven months to the end of January in last Friday’s profit statement.
It said that "Sales for the seven months to 31 January 2008 increased by 11.6% (12.4% for the six months to December) compared to the seven months ended 31 January 2007, and like for like sales increased by 6.3% (6.9%)".
JB Hi Fi upgraded its branded store rollout guidance to 150 from the previous target of 120.
The company had 85 branded stores at 31 December, 2007 and it says it expects to have 13 to 15 new store opportunities each year for the next four to five years.
"The 150 stores are expected to be of a similar size and sales volume as the existing 85 JB Hi-Fi branded stores.
"The company also believes there are further opportunities to open smaller format stores with similar product categories in smaller consumer catchment areas. The company will increase its focus on these opportunities as it draws closer to the 150 store target.
“We have learned a lot about where we can open JB stores in the past year or two as we continued ou
