David Jones chief executive Mark McInnes says the upmarket department store group is well positioned to leverage the next upturn in the economic cycle.
"We are well positioned to leverage the next up-cycle," he told shareholders at the retailer’s annual general meeting in Melbourne yesterday with new stores and store refurbishments a big part of why he is confident.
"Our company is well positioned to achieve significant profit leverage to sales growth in the next up-cycle."
He said the "company currently is in active negotiations to open a further four stores in high value locations.
"These new stores, coupled with our redevelopment of our Bourke Street Melbourne CBD flagship store, (which will increase sell space by 30%) and the rebuilding of our Claremont store (which will almost double the store’s size), are expected to deliver an increase of approximately 15% to 25% in Sales growth and selling space over the medium term.
"Our Company is also in the midst of implementing its Refurbishment Program.
"To date, seven high value stores have been refurbished or are in the process of being refurbished.
"A further three to five high value stores in key suburban sites are planned over the next 12 to 36 months. Each refurbishment will deliver a payback on capital invested within 1 to 3 years.
"Importantly, our New Store and major Rebuild Strategy supports our Gross Profit Margins as we allocate more space to high margin categories and brands," the CEO told the meeting.
He also cited good cost management as a major factor behind the positive outlook.
"There is upside for gross profit margins in a strong sales environment," he added.
David Jones shares rose to $5.76, up 7c or 1.2%.
Mr McInnes noted that in the second half of fiscal 2009 David Jones’ gross profit margin grew by 50 basis points.
"We are well positioned to continue growing GP (gross profit) margins as the economy enters the next up-cycle," he said.
"Our company’s GP margin target range is 39.5 per cent to 40 per cent throughout the economic cycle.
"Whilst traditionally gross profit margins decline during a downturn, David Jones has delivered five basis points improvement in gross profit margins in fiscal year 2009 despite trading through the most difficult economic environment since the recession in the early 1990.
"Our Company’s GP Margin target range is 39.5% to 40% throughout the economic cycle.
"Whilst traditionally gross profit margins decline during a downturn, David Jones has delivered 5 basis points improvement in gross profit margins in FY09 despite trading through the most difficult economic environment since the recession in the early 1990s."
Mr McInnes said the group’s growth program, which will require a $400 million capital investment over the four years from fiscal 2009, is fully funded.
"Importantly, no additional debt funding is required to fund our extensive growth program," he said.
Mr McInnes also said customer take-up of David Jones’ branded American Express card product has been better than expected.
"Sign-up of cardholders to date has significantly exceeded all our expectations," he said.
The card alliance was launched ahead of Christmas last year.
Mr McInnes finished his address by telling the meeting:
"I have just returned from a nationwide 37 store review. I have personally met with each Store Manager and have seen all their plans for this Christmas and am pleased to report that our stores have never looked better, nor have we been better prepared for the all-important Christmas trading period."
Also in Sydney yesterday Harvey Norman CEO, Katie Page was a bit more cautious than husband and chairman, Gerry Harvey.
He told the market a week ago that sales for the first four months of the new financial year were up 5.9% and pre-tax profit should be up "in excess of 40% for the first half of the year".
But yesterday Ms Page was cautious about the Christmas trading period.
"Who knows what will happen in December compared to last year, we are hoping we always to do better."
Reflecting the impact of the global economic downturn, Harvey Norman’s 2008/09 first half net profit had dropped 57% to $99.33 million.
Ms Page also ruled out any further expansion into new markets.
She said its 16 stores in Ireland were still struggling as the Irish economy continued to suffer, but would not say if the retailer would exit from the market.
"Ireland is not going any better, we are looking at it every month," she said.
Harvey Norman shares rose 8c, or 1.9%, to $4.30.
The overall market was up 2.3%.
