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DJs alert sparks panic selling

THE admission from the David Jones chief executive, Paul Zahra, that the department store was mired in its worst fourth quarter sales period in more than 20 years provoked panic selling across all retail shares yesterday,

THE admission from the David Jones chief executive, Paul Zahra, that the department store was mired in its worst fourth quarter sales period in more than 20 years provoked panic selling across all retail shares yesterday,

The mood quickly spread to other retail-exposed sectors such as shopping centre owners and media companies which were caught up in the continuing spending strike by consumers.

Shares in David Jones plunged 19 per cent to hit a two-year low after Mr Zahra detailed what he described as a "dramatic and rapid deterioration" in sales at the till and foot traffic through his stores which had flared in June and crumbled further in the first two weeks of July.

"We are in the eye of a perfect storm," Mr Zahra said at a media conference after releasing David Jones's shock sales and profit downgrade to the sharemarket late on Wednesday night.

He threw in a bag of issues hitting the company including the flood levy, a looming carbon tax, higher interest rates and the stronger Australian dollar. "We saw a decline in May with slight negative sales, but we saw a significant decline in June and July and the results were certainly unprecedented. As far back as our records show, we haven't seen these sorts of declines in sales."

Mr Zahra, at times sounding exasperated during the press conference, said consumers remained deaf to some of the massive discounts David Jones was offering to clear its winter stock with further and deeper sales likely to make way for the launch of spring and summer lines from August 1.

David Jones shares dived as low as $3.17 as investors dumped the stock. It closed down 71?, or 18.2 per cent, at $3.20. The rout slashed $370 million from the company's market capitalisation.

It dragged down other retailers, including its arch rival Myer, the nation's biggest department store owner, which fell 17?, or 6.4 per cent, to $2.48, despite it reaffirming its 2010-11 profit guidance yesterday in an attempt to quell investor fears.

Investors were twitchy and sold down retail stocks as well as other companies exposed to the sector. The bulk of the worst performing companies in the S&P/ASX 200 were retail related, with JB Hi-Fi down 5.3 per cent, Harvey Norman 4.56 per cent weaker, Fairfax Media down 4.21 per cent and Seven West Media down 3.78 per cent.

Mr Zahra singled out in particular the slew of taxes introduced or about to be introduced by the federal government for turning his core shoppers away, but said there was a wider malaise now infecting most consumers and retailers across the spectrum. "That aspirational [David Jones] customer has actually stopped shopping and people are just not confident about the year ahead.

"Customers are choosing not to shop, they are saving their money and paying down debt, and there is a real level of uncertainty locally as well as internationally."

But some of the problems facing David Jones appear to be of its own making, with bloated inventory levels going into the June and July clearance sales, forcing the company to trigger deeper discounting, which hurt margins.

David Jones had warned on Wednesday night that fourth quarter sales would fall by 11 per cent and net profit for its second half of 2011-12 down by between 15 per cent and 20 per cent compared to 2010-11.

"Things are tough for retail and the David Jones downgrade has reflected that," Simon Bonouvrie, a portfolio manager for Platypus Asset Management, said. "It looks like conditions fell off a cliff in June and July and it went from being flat to negative and I think there are also some specific David Jones issues they have, such as inventory."

He said David Jones probably allowed too much inventory to build up, expecting better trading conditions than they have now struck, which means they will have to clear more inventory. "That will put more pressure on their profits."

Mr Zahra said David Jones planned to deal with the excess inventory this year. "It just means that our discounts may be deeper as we move into the summer season."

Inside

Now it's the retailers who need therapy.

Page 5


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