DJs holds firm on sales discounts

David Jones boss Paul Zahra has vowed to push through his strategy of sacrificing loss-making stocktake sales to safeguard store profit margins, just at a time when a warm start to winter and pitiful consumer sentiment have led the upmarket department store to post its worst quarterly sales result in two years.

David Jones boss Paul Zahra has vowed to push through his strategy of sacrificing loss-making stocktake sales to safeguard store profit margins, just at a time when a warm start to winter and pitiful consumer sentiment have led the upmarket department store to post its worst quarterly sales result in two years.

Such is the impact of the recent warm weather across eastern Australia on fashion sales that, between January and April, shoppers turned their back on piles of sweaters and coats to make David Jones' swimwear department the best performer - something that has never happened before.

Shares in David Jones, Australia's oldest department store, which will soon celebrate its 175th birthday, fell more than 5 per cent on Monday when the fashion and discretionary retailer reported a worse than expected decline in third-quarter sales on the back of a costly pullback in discounts and promotional activity, a dive in revenue coming from its electrical department and unseasonable warm weather.

The stock ended 2ยข weaker at $2.56, a four-month low.

But Mr Zahra said in a trading environment plagued by cautious consumers, unpredictable weather and sector-wide discounting, David Jones would focus on the areas of its business it could control - gross profit margins, inventory and costs.

"We want the sales, but they have got to be profitable and that's the fine line that we walk," he said as he revealed that April-quarter sales had slipped 2.2 per cent to $391 million and like-for-like sales - which removes the impact of new stores - fell 3.4 per cent to $386.2 million.

"I can easily turn sales on by discounting, it's not difficult, not complex, but we chose not to do that on ... low-margin categories just to get a top-line sales number. It's about the profit and that's what investors will be looking for."

This would mean a continuation of last year's policy of retreating from discounting as well as reining in the number of high-profile clearance sales, despite David Jones taking an immediate hit to its sales momentum.

The sales fall during the third quarter reversed gains made in the second quarter and was the worst result since the first quarter of 2012. The last time David Jones was able to stich together two consecutive quarters of positive sales growth was the first quarter of 2011.

Mr Zahra said shareholders would benefit in the long run from his strategy of repairing the company's margins and not chasing sales at any price. The store's decision to pull back orders last year also meant it had a better inventory position going into winter, meaning it was even less reliant on loss-making sales to clear unwanted stock.

He said during the quarter David Jones cut a mid-seasonal sales promotion by one week and stripped out five "discounting events", including a floor stock sale worth about $10 million in sales. But this decision did hurt womenswear, a flagship category for the upmarket chain, which had declining sales growth for the first time since the global financial crisis.

Mr Zahra said lower-spending customers were "not shopping for fashion reasons but for need".

Electricals suffered, although it remains a low-margin business, while high-margin menswear and childrenswear categories delivered growth for the quarter.

"I'm surprised David Jones still have electrical goods," said Shaw Stockbroking analyst Scott Marshall, "because every retailer has identified that as a declining market, so David Jones should not be in there at all."

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