Forget the lower net profit from David Jones (DJS) yesterday and concentrate on the details of the financial result – they show the retailer is getting its act together.
In fact rival Myer (MYR), which releases its interim results later this morning, will have to reveal figures as promising as David Jones to be able to justify a merger.
That’s because it’s clear David Jones basic retailing business is rebounding after several years of weak outcomes and downright under-performance.
But we know that the Myer result won’t be strong because of previous warnings about the impact of higher depreciation and other costs already flagged by the company.
The most important part of the David Jones result was that department store earnings were better than the market was anticipating with an 8.3% rise in earnings before interest and tax to $91.6 million, from $84.6 million.
That was on a 3.8% rise in topline sales for the quarter to $1.043 billion, and a 1.1% rise in like for like sales (or same store or comparable store sales).
But David Jones made the point that if sales in the electronics business (which is now being run by Dick Smith) were stripped out, like for like sales were up 3.6% in second quarter, and 2.4% in the first quarter.
CEO Paul Zahra said in yesterday’s release that, "Our result this half reflects the momentum that our Future Strategic Direction Plan is gaining, with our core Department Store business delivering 8.3% EBIT growth".
"Our result this half also reflects the fact that the EBIT contribution from our Financial Services business broadly halved in line with previous guidance," he said.
Equally the company managed to cut its cost of doing business by 0.30 of a percentage point to 40.2%, with the company’s gross profit margin steady on 39% (39 cents in every dollar of sales), despite extensive discounting around Christmas and New Year).
Other factors in keeping a lid on margins was the retailer’s exit from more low margin lines, and the start of the Dick Smith outsourcing in electronics.
DJS 1Y – David Jones results show retailer improving
The company said first-half net profit fell 4.6% to $70.1 million because the 53% drop in earnings from credit card operations offset higher earnings from the department stores.
Credit card earnings fell a higher-than-expected 53% to $11.6 million as David Jones moved from a profit-guarantee agreement to a profit-share agreement with its joint venture partner, American Express.
David Jones expects credit card earnings to fall $24.5 million this year, increasing pressure on management to grow store earnings.
David Jones kept its interim dividend steady at 10c a share, representing a payout ratio of 69%.
And there were some other bullish points about the result.
The company had no net debt at the end of the half year, compared with $64 million a year earlier.
For that reason the shareholder dividend reinvestment plan has been suspended for the interim dividend.
Directors said the online store grew significantly and was up 150% on the corresponding prior year period.
No figures were given, but the current share is believed to be 2%. It did say it was aiming at getting 10% of all sales from its online business by 2018, which seems to be a bit slow.
That would be more than $200 million a year, but Woolworths and Coles already get more than $1 billion a year each from their online businesses.
Another interesting move was revealed in yesterday’s report with the retailer saying it was now targeting the inbound Asian tourist market through the acceptance of UnionPay (China’s main interbank payment system) and employing 140 front line staff fluent in Cantonese and Mandarin and the introduction of new promotional events such as Chinese New Year.
David Jones shares have risen 15% since late January, when Myer revealed that it had suggested a $3 billion “merger of equals” proposal to the board on October 28.
That rise drained a lot of what would have been support for the stock yesterday in the wake of the result. The shares ended slightly lower at $3.32. Myer shares also dipped a cent to $2.66.
DJS Results Snapshot Video
