Shares in upmarket retailer, David Jones took a pounding yesterday after a sales and earnings downgrade, along with a surprise job cull at head office.
That was to be expected, given the fragility there is at the moment about many shares, large and small and the impact of the recession on their businesses.
David Jones shares fell by over 10% at one stage, before making up ground to end down 14 cents lower at $2.50. They were much lower during the day.
Retailing and resources are two sectors in the front line of the slowdown.
BHP Billiton had bad news yesterday; David Jones’ wasn’t as dramatic, but in some ways it better illustrated the impact of the slump that’s here, and coming. One hundred and fifty head office jobs going, cost cuts in marketing, but no frontline sales positions eliminated.
But casuals working at the frontline will have their hours cut because of the sales fall.
David Jones also will cut food, champagne and the after-party from its February fashion parades in Sydney and Melbourne, moving the shows to an austere morning timeslot from the evening, as it prepares for a further slowdown in the economy.
David Jones has prepared for the slowdown: it has boasted of its tight control on stocks and ordering, and softened the market up for the bad times by warning of negative sales growth for a year or more.
"Since the 2003 Strategic Plan we have developed our business model to be resilient with a strong foundation upon which to trade through the challenging retail conditions forecast in 2009, CEO, Mark McInnes said in yesterday’s statement.
"We have a large loyal customer base, who in times of difficulty and uncertainty trust David Jones to provide the best and broadest range of brands at competitive prices coupled with the best service."
But, as we found out yesterday, those warnings late last year, were a little optimistic: sales have slumped by more and profits will be lower, and this state of affairs will last for longer.
The company said profit after tax is now likely to grow between 0%, and flat, to 5% for the 2009 first half and full year, and the 2010 full year, the Sydney-based company said in a statement to the ASX.
That compares with the previous forecast in November, of between 5% to 10% after-tax profit growth.
The retailer said it cut its forecasts in response to an Access Economics forecast of the Australian economy which predicted that the macro economic outlook over the next six months would remain extremely challenging and significantly worse than anticipated in previous reports.
"Given the current trading environment, we have also taken steps to ensure that our Company is appropriately aligned to trade through this challenging period, chief executive Mark McInnes said in the statement.
"Although 2009 will be a very challenging year from a sales perspective, we have set solid foundations for our business and our business model is sound.
In fact our Company is at its strongest since listing in 1995," he said confidently.
David Jones said it expected like-for-like (LFL) sales in the second half of the 2009 financial year to fall 10%, rather than the 7.5% decline forecast in November.
Sales during the first half of 2010 are likely to fall between 3% and 5%, with flat sales growth in the second half.
"The Company has traded through most of 2Q09 and now expects LFL Sales to be approximately –9.5% for 2Q09 (plus the new Doncaster store sales) rather than the –7.5% guidance provided at the 1Q09 Sales announcement on 26 November 2008.
"Given 1Q09 LFL Sales declined by 6.1% and today’s Sales Guidance for 2Q09 of –9.5%, 1H09 LFL Sales are expected to be approximately –8.1%. 1H09 Total Sales are expected to be approximately –6.7%.
"On the basis of Access Economics’ forecast and the Company’s 1H09 trading experience, management has set appropriate business parameters by internally budgeting its LFL Sales in 2H09 to be –10%. This –10% guidance is off a base of 1.5% LFL Sales growth in 2H08."
The company said it would cut 150 head office and administrative support positions as part of an organisational realignment being carried out this month in Sydney.
No customer-facing jobs would be cut and the company said in the statement that it was "excellent shape", with inventory below last year’s levels and strong cashflows.
The company said it had been able to reduce the cost of doing business significantly during the first half, and that would continue over the next year.
With an ambitious expansion plan outlined in recent months, David Jones said it would be able to continue funding this growth and capital expenditure to 2012 from operating cashflows.
"We have debt of less than $100 million at half-year end (and our bank facility extends until 2012). This debt relates to the repurchase of our Sydney and Melbourne CBD flagship store properties in September 2006.
"The interest payable on our debt is significantly less than the commercial rent that would be payable for these properties,” Mr McInnes said.
"The Board of Directors today reiterated their commitment to return excess cash to shareholders in the most efficient manner over time.
"The Board also reaffirmed its Dividend Payout Policy of not less than 85% of PAT," the statement said.
