Upmarket retailer, David Jones had a very different reception from the market yesterday to its interim profit than it got last month when it flagged a solid increase was on the cards.
The guidance upgrade on February 11 was given the thumbs down with the shares being sold off heavily, and brutally. That marked a general fall in the share price, which had been well above $5 in January.
Not even news of a partner in Amex for a new credit card, or a new strategic plan with solid spending on new and refurbished stores and cost cuts could shake the down trend.
But yesterday with the release of the 2008 interim results, the reaction was different. The shares were bid up 28c at one stage to a day’s high of $3.82 before they came back in afternoon trading to close 17c higher at $3.71.
The retailer reported a 25% rise in underlying interim earnings, thanks to a very solid Christmas period, and expressed confidence it will make second half profit growth guidance of eight to 13%.
But sales growth slowed in February and March to around 2-3%, a sign of flagging consumer spending. But that wasn’t enough to send the shares lower. A month ago it would have.
Underlying net profit was $88.98 million, excluding the impact of the company’s unwinding and leaseback deal in fiscal 2007.
First half sales rose 9.5% to $1.1345 billion, and earnings before interest and tax (EBIT) rose 23.7% to $136.8 million, compared to the same half of the previous financial year.
The department store business reported a 26.9% rise in EBIT to $118.4 million and its financial services division had a more modest 6% increase in EBIT to $18.4 million, thanks to higher borrowing costs.
The company declared a fully-franked interim dividend of 11c an ordinary share, up from 9c in the first half of 2007. It said it would continue to deliver dividend growth in line with profit growth and a payout ratio of no less than 85%.
The company said that Gross Profit Margin for the first half of FY08 was 39.8% (compared to 39.5% in 1H07), an improvement of 0.30%.
"This represents consistent improvement in the Company’s Gross Margin since implementation of the 2003 Strategic Review and is a key area of opportunity in the Company’s FY09 – FY12 Strategic Plan.
"The Total Cost of Doing Business (CODB) percentage for 1H08 was 29.4%, an improvement of 110 basis points on the CODB percentage in 1H07 (30.5%). This result reflects the effective implementation of our Cost Efficiency program," Mr McInnes said in yesterday’s statement.
DJS said it was confident about its current half performance and expected to again rack up another year of delivering year on year growth in shareholder returns.
"We have taken a hard line approach to inventory and cost management in our business and we reaffirm our guidance of eight per cent to 13 per cent underlying PAT (profit after tax) growth and dividend growth in second half 2008," David Jones CEO, Mark McInnes said in a statement accompanying the result.
Mr McInnes reiterated earlier comments given this month when the company unveiled its four-year strategic plan, saying the retailer was committed to growing after tax earnings by at least 5 to 10% over the next three to five years. .
He said the retailer was well prepared to address an expected slowdown in consumer spending in the second half of the 2008 financial year and beyond.
"Our business is in good shape and our future is bright," Mr McInnes said.
The retailer expected consumer spending to slow in the second half of the 2008 financial year and in fiscal 2009.
The company said that "As previously stated at the FY09-FY12 strategy presentation, like-for-like sales in FY09 and FY10 are expected to be 0-1 per cent per annum, with 2-3 quarters of flat to negative like-for-like growth".
Mr McInnes said the company remains on track for a pre-Christmas 2008 launch of its new David Jones American Express card. It will hand over all receivables and credit risk relating to its financial services business to American Express on August 1, 2008, lowering risk in that part of its business.
He said the retailer remains in a strong financial position, with no additional debt required to fund recently outlined growth programs for FY09-FY12.
An update on sales performance and the company’s view on economic forecaster Access Economics’ outlook will be given in May.
