David Jones H1 profit dips slightly

David Jones (DJS) says its has successfully transformed itself into an omni-channel retailer, posting a lift in first-half revenue despite a small decline in interim net profit, in developments that will likely have a significant impact on any potential merger with rival Myer.

In the six months to January 25, David Jones posted a net profit of $70.1 million, a 4.6% decline on the $73.53m posted in the previous corresponding period.

In the same period revenue was $1.042 billion, an increase of 3.8% on $1.004bn in the first half of the previous year.

David Jones' online store grew significantly, notching up a 220% improvement in total sales on the corresponding prior year period, to account for 2% of the group's total sales in the second quarter of the year.

In the half, total sales came to $1.025bn, a modest increase on the $1.004bn recorded in the previous corresponding period.

The retailer said the growth in online sales was attributable to new services, such as 'click and collect' being launched online, the introduction of new functionality on its website, as well as a significant expansion of range.

David Jones said it is aiming for online sales to constitute 10% of total sales by fiscal 2018.

The retailer will pay an interim dividend of 10 cents, fully franked, to shareholders on May 7.

The record date for the interim dividend is April 10.

Investor response to the result was cautiously upbeat. At 10.30am (AEDT) David Jones shares were 0.6% higher at $3.35, against a benchmark index decline of 0.07%.

David Jones said its balance sheet remained strong, holding no net debt at January 25, compared to net debt of $64.3m on the same date a year earlier.

As a result of its low debt position, the retailer said it was discontinuing its dividend reinvestment plan (DRP), meaning it will be unavailable to shareholders for the interim dividend.

The retailer said its cost of doing business (CODB) increased by $8m in the period to $314.5m, primarily due to higher lease and occupancy costs and higher depreciation charges.

The company said the transfer of control of its electronics division to retail business Dick Smith had helped boost its result by removing what had been a drag on earnings.

It also said it planned to exit underperforming stores, including Birkenhead Point in NSW and Harbour Town in Queensland, and would not renew its leases.

Mixed fortunes in property, financial services

Meanwhile, the retailer said it had received positive feedback from Sydney City Council in relation to a proposal to develop the air space above its Market Street store.

In 2012 the group's four Sydney and Melbourne CBD properties were valued at $612 million, on a current use basis and since then David Jones has been exploring options to unlock the value of these properties including the air rights above the existing buildings.

This month Colliers International was appointed as the company’s property advisors to seek expressions of interest in relation to the Market and Elizabeth Street (NSW) sites.

Earnings from David Jones' financial services business -- comprised of the David Jones store card, the David Jones American Express gold card and the David Jones American Express platinum card -- declined by 10% reflecting a large decline in store card receivables and an increasing trend by cardholders to pay down debt.

However, David Jones said the earnings decline in store cards was fully negated by an increase in the contribution from the David Jones American Express cards, which now accounts for approximately two thirds of financial services earnings.

Zahra upbeat on strategic plan

Chief executive officer Paul Zahra said the interim results were testament to the momentum David Jones strategic plan was gaining.

"Our result this half also reflects the fact that the earnings before interest and tax (EBIT) contribution from our Financial Services business broadly halved in line with previous guidance," he said.

Mr Zahra said the department store business was delivering solid EBIT growth, adding that the group's brand and market positiod held it in good stead for future growth.

"We have a robust business model with good growth prospects and we continue to be committed to paying out not less than 85% of profit after tax (PAT) to shareholders as fully franked dividends," Mr Zahra said.

Results likely to impact Myer merger

The interim results will be widely watched by shareholders and retailers alike, as Myer's proposal to merge with David Jones continues to garner sharp media attention.

Today's earnings report follows Mr Zahra's decision this month to continue in his current role, after he earlier announced his intention to quit, as well as the appointment of Gordon Cairns as chairman, replacing Peter Mason.

Myer confirmed in January that it undertook "significant analysis" before approaching David Jones to consider a merger.

The David Jones board rejected the offer, saying the transaction did not represent sufficient value for shareholders.

Last month, Myer renewed its push to talk about a possible deal, saying it would be a "true merger of equals".

The Australian Competition and Consumer Commission has said it will follow any developments in the proposed deal closely.

Yesterday, David Jones director Leigh Clapham resigned from the board, effective immediately, and the retailer announced it had David Jones has engaged management consulting firm Port Jackson Partners to assess the value of synergies that could be extracted if merged with Myer.