The Intelligent Investor Growth Fund is listing on the ASX. Initial Offer closes Friday.

DJs sets off retailer dive

AN ADMISSION by chief executive Paul Zahra that David Jones was mired in its worst fourth-quarter sales period in more than 20 years prompted panic selling yesterday across all retail stocks.

AN ADMISSION by chief executive Paul Zahra that David Jones was mired in its worst fourth-quarter sales period in more than 20 years prompted panic selling yesterday across all retail stocks.

The investor exodus quickly spread to other retail-exposed sectors.

Shares in David Jones plunged 19 per cent to a two-year low after Mr Zahra detailed what he described as a "dramatic and rapid deterioration" in sales and foot traffic through his stores. This had begun in June and grown worse in the first two weeks of this month.

"We are in a perfect storm," Mr Zahra said at a media conference after releasing David Jones's shock sales and profit downgrade to the sharemarket on Wednesday night, citing a string of problems confronting the company, including the flood levy, the 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. Further and deeper sales appear likely to clear the way for spring and summer lines from August 1.

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

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

The selloff extended to companies with any connection to the retail sector. Most of yesterday's worst performers in the S&P/ASX 200 were retail related: JB Hi-Fi lost 5.3 per cent, Harvey Norman 4.6 per cent, and Seven West Media

3.8 per cent.

Mr Zahra particularly singled out the slew of taxes introduced or about to be introduced by the Gillard government for turning his core shoppers away, but said there was a wider malaise 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 warned on Wednesday night that fourth-quarter sales would fall by 11 per cent and net profit in the second half of 2011-12 would be down by 15-20 per cent from 2010-11.

"Things are tough for retail and the David Jones downgrade has reflected that," said Platypus Asset Management portfolio manager Simon Bonouvrie.

"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."

Mr Bonouvrie said David Jones probably allowed too much inventory to build up, expecting better trading conditions than it had now struck, meaning it would 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.

"We don't plan to add to our discounting and marketing program," he said. "It just means that our discounts may be deeper as we move into the summer season."

Join the Conversation...

There are comments posted so far.

If you'd like to join this conversation, please login or sign up here

Related Articles