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 DJs 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 DJs' 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 DJs 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.
DJs 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 DJs 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.
DJs 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 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 DJs 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 DJs 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."
Frequently Asked Questions about this Article…
Why did David Jones (DJs) shares plunge suddenly and what did their CEO say?
DJs shares plunged after CEO Paul Zahra admitted the company was in its worst fourth-quarter sales period in more than 20 years. Zahra described a "dramatic and rapid deterioration" in sales and foot traffic that began in June and worsened into July, calling the situation a "perfect storm" of pressures including new taxes, higher interest rates and a stronger Australian dollar.
How big was the sell-off in David Jones stock and what was the market impact?
DJs shares fell sharply intraday (around 19% to a two‑year low) and closed down about 71 cents (18.2%) at $3.20. The rout wiped roughly $370 million off the fashion retailer’s market capitalisation and triggered panic selling across other retail-related stocks.
What sales and profit downgrade did David Jones announce?
DJs warned fourth‑quarter sales would fall about 11%, and that net profit for the second half of 2011‑12 would be down around 15–20% compared with 2010‑11, prompting the downgrade that alarmed investors.
What internal problems at David Jones made things worse for the retailer?
Beyond broader economic pressures, DJs appears to have built up bloated inventory going into its June–July clearance sales, forcing deeper discounting that hurt margins. Management said it would clear the excess stock, which may mean deeper discounts as the season changes.
How did the David Jones downgrade affect other retail and retail‑exposed stocks?
The investor exodus spread quickly across retail-exposed sectors: Myer fell about 6.4% to $2.48 despite reaffirming profit guidance, while JB Hi‑Fi lost 5.3%, Harvey Norman 4.6% and Seven West Media about 3.8%. The downgrade highlighted broader weakness in consumer spending and investor sentiment toward retail.
What macro and consumer factors did David Jones cite as weighing on sales?
Paul Zahra pointed to a string of external pressures—such as a flood levy, the looming carbon tax, higher interest rates and a stronger Australian dollar—plus weaker consumer confidence, with many shoppers saving more and paying down debt rather than spending.
What did management say it would do about discounting and marketing?
Management said it did not plan to add to its overall discounting and marketing program, but acknowledged discounts may need to be deeper as DJs works through excess winter inventory into the spring and summer season starting August 1.
What should everyday investors watch for after the David Jones downgrade?
Investors should monitor DJ’s updated sales and profit guidance, inventory levels and margin trends, signs of improving or worsening foot traffic and consumer confidence, and whether competitors (like Myer, JB Hi‑Fi and Harvey Norman) report similar sales weakness that could signal broader retail sector risk.
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