DJs to ride out slump in sales
David Jones chief Paul Zahra has vowed to push through his strategy of sacrificing loss-making stocktake sales to safeguard profit margins, at a time when a warm start to winter and weak consumer sentiment has led the department store to post its worst quarterly sales result in two years.
Such is the impact of the warm weather across eastern Australia on fashion sales that between January and April shoppers turned their back on sweaters, jumpers and coats to make David Jones' swimwear department the best performer - something that has never happened before.
Shares in David Jones fell more than 5 per cent on Monday when the retailer reported a worse than expected decline in third quarter sales on a pullback in discounts and promotional activity, a fall in revenue from its electrical department and unseasonable warm weather. The stock ended 2¢ 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, namely 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," Mr Zahra said as he unveiled April quarter sales down 2.2 per cent to $391.1 million and like-for-like sales - removing the impact of new stores - down 3.4 per cent to $386.2 million.
"I can easily turn sales on by discounting 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 clearance sales.
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 concentrating on margins. The store's decision to restrict orders last year also meant it had a better inventory position going into winter.
He said during the quarter David Jones cut a mid-seasonal sales promotion by one week and stripped out five "discounting events" including a floorstock sale worth about $10 million in sales.
But this decision did hurt womenswear, a flagship category. Electricals again 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."