So what did David Jones do that set its shares alight yesterday?
Well, confirmed that the improving trend in its sales was continuing and was now to the point where previous forecasts were now irrelevant.
Sales guidance for the first half is now for a rise of 7.2 per cent to 7.8 per cent range compared to between two per cent and four per cent in the late November update.
And David Jones now expects the first half’s underlying net profit after tax (NPAT) to grow by between 25 per cent and 30 per cent compared to the first half of 2006.
It had previously tipped underlying net earnings after tax to rise by between 8.5 per cent and 13.5 per cent. Clearly there has been a significant improvement in the company’s margins
That will put net earnings at around $70 million, compared to $54 million previously and the company in sight of the $100 million mar for the full year.
The shares jumped sharply to run up 31c to a new intra-day high of $4.38 before settling back at a new all time closing high of $4.35. That was a rise of 28c or nearly seven per cent!
David Jones said it was raising its guidance because of its strong trading performance over the past two months (the bulk of its second quarter) and sales across all categories had exceeded expectations. More details will be provided at the release of the company’s second quarter sales results in February.
“As a consequence of the company’s strong trading performance over the past two months, 2Q07 (second quarter) sales growth is expected to be in the range of 8.0 per cent to 9.0 per cent on 2Q06,” David Jones said in a statement to the ASX yesterday.
“This has resulted in the company increasing its 1H07 (first half) sales guidance to 7.2 per cent to 7.8 per cent growth on 1H06.”
With just two weeks of trading to go in the second quarter, the company plans to provide a comprehensive update on its first half profit performance (including its final gross profit and costs position) at the half year results announcement in mid/late March.
“We are cycling a high base of 4.4 per cent sales growth in 2H06 (second half 2005/06), and importantly, 5.4 per cent sales growth in 4Q06 (fourth quarter 2005/06), which is the key trading period for the half,” Mr McInnes said in commentary included in the statement.
“As a trading business we prefer to trade through 2H07 (second half 2006/07) before updating our existing guidance of sales growth of 0-1.00 per cent and underlying PAT growth of 8.5-13.5 per cent in the second half of FY07 (fiscal 2007).”
David Jones exceeded its first quarter guidance in November, delivering a 6.3 per cent increase in sales to $430.3 million while in the 2006 financial year the company’s net profit rose 19.3 per cent to $81.12 million.
What will be interesting at the earnings release is whether the earnings forecast for 2008 is lifted. David Jones had forecast earnings improvements of five to 10 per cent for both 2007 and 2008 fiscal years.
Did Coles sell Myer too early and too cheaply?
