Just as reports from major banks like the Commonwealth, Westpac and St George have shown that investors fear about damage to earnings from the credit crunch and economic slowdown, so too investors in retail stocks should see some assurance in the upgraded 2008 profit guidance for department store group, David Jones.
The shares jumped 10% to a high of $4.04 yesterday after the retailer lifted its second half earnings guidance by up to 25%.
The outlook for this year, according to the company, is for flat trading for at least two to three quarters, but earnings up 5%-10%. David Jones said it is expecting sales to grow by 1% at best.
"The outlook for FY09 is for a continued slowdown in consumer spending," the company said yesterday.
"Our business is well prepared for this. We have a proven business model, a strong cash position, clean inventory levels, an established Cost Efficiencies program and opportunities for growth.
"We believe our Company has a bright future and that we are well positioned to continue our track record (since 2003) of delivering year-on-year growth in shareholder returns and reaffirm our FY09 Guidance of at least 5% – 10% PAT growth off the new, higher FY08 base," Mr McInnes said.
David Jones signalled that it had been expecting a retail slowdown for 18 months and had set stock and order levels in anticipation of the slump the retail sector has been experiencing since the start of the year (and which gathered pace in June).
The company told the market that net profit rose by 20%-25% in the second half to the end of July, to $46 million and $48 million. That was double the 8%-13% range in the previous forecast.
The company reports its final 2008 profit figures early next month.
The 36-store group however did reveal the impact of the retail slowdown on sales: it reported fourth-quarter like-for-like sales growth of 0.8% and top line growth of 1.7%, compared to 3.8% top line growth and 2.3% growth in like-for-like sales in the third quarter, and 9.5% topline growth (7.2% life-for-like) in the first half. The second half figures were 1.5% growth in topline sales and like-for-like growth of 1.2%.
But the company’s anticipating of the transition from boom to gloom in retailing seems to have positioned it well for the coming year.
"We were anticipating a slowdown and had started planning for it more than 18 months ago. As part of the planning process we ensured that each key component of our business was prepared for a soft retail environment.
"We utilised the strong economic climate in late 2006 and 2007 to implement Cost Efficiency Programs that have delivered and will continue to deliver sustainable and significant cost savings (both fixed and variable) in FY08 and beyond.
"Our Inventory has been well managed.
"We ensured more than 12 months ago that we ordered for flat sales growth in 2H08 and we utilised the month of July to clear out any remaining surplus winter stock.
"We are now in the position of our year-end stock in 2008 being 8% lower than in FY07, which means we have a very clean inventory position entering into FY09.
"Despite volatile trading in second-half 2008 and the requirement to clear seasonal stock, our gross profit percentage is up approximately 10 basis points on second-half 2007," DJs told the market in its update statement.
"This means we are well placed to deliver our gross profit margins within our target range of 39.5-40.0% throughout fiscal 2009-fiscal 2012."
Shares in David Jones had fallen 32% so far this year before the statement yesterday, compared with a 20% fall for the broader market.
"We stated at the time of our Strategic Plan announcement in March 2008 and at the time of our 1H08 Results that we expect LFL sales growth in FY09 and FY10 to be 0% – 1% per annum and include two to three quarters of flat to negative growth.
"We now expect these two to three consecutive quarters of flat to negative LFL growth to be the first three quarters of FY09.
"Given the extensive work we have undertaken to prepare for this environment, we are confident that our Company will deliver at least 5% – 10% PAT growth per annum whilst operating under these conditions," Mr McInnes said.
