David Jones (DJS)
David Jones is a world-class department store with a corner-shop share price.
We all know retailers are doing it tough, with consumers worried about interest rates, electricity and petrol prices. Christmas is easily the most important quarter for David Jones, when nearly one-third of its sales are rung up. But the purveyor of numerous high-quality brands is understandably nervous about whether its customers will venture beyond discount department stores this year.
Sagging sales are the fundamental problem. The company does not expect an improvement on the May to July quarter, when sales declined by about 10 per cent on the same period last year. On that basis, it hopes the first-half net profit, including the Christmas period, will be down by only 15 per cent to 20 per cent on last year.
Even then, that guidance is inclusive of the freshly refurbished stores at Chadstone and Warringah Mall contributing a standard lift in sales.
In 2008, David Jones was in the midst of a nine-year run of sales growth. A strategic plan was set out for the next five years that envisaged up to 10 per cent growth in after-tax profits, driven by lower running costs supplemented by up to eight new stores, 14 refurbishments and a new financial services model.
Now, chief executive officer Paul Zahra is working on the next plan, which we imagine might look more modest, given the sombre outlook for consumer spending. He will unveil the new plan next year.
Price
David Jones is most often compared to Myer, as a department store and as an investment. But it has differentiated itself by loading up on exclusive brands and targeting a wealthier demographic. The investment metrics of both companies are similar, with barely $5 million separating the net after-tax profit of each this year. In better times, David Jones is worth much more than its present share price of about $2.79. Right now, we prefer Myer for the continuing improvement in its profitability.
Greg Fraser is an analyst at Fat Prophets.
CORRECTION
In last week's tables for online savings accounts, the introductory bonus rate for Westpac's Reward product was incorrect. The rate is 6 per cent.
Frequently Asked Questions about this Article…
What is the current David Jones (DJS) share price mentioned in the article?
The article notes David Jones’ share price at about $2.79.
Why are David Jones sales sagging and how big was the recent decline?
The article says retailers face tough conditions as shoppers worry about interest rates, electricity and petrol costs. David Jones reported sales declined by about 10% in the May–July quarter compared with the same period last year.
How important is the Christmas quarter for David Jones’ revenue?
Christmas is the most important quarter for David Jones — nearly one‑third of the company’s annual sales are typically rung up during that period, making it crucial to the first‑half result.
What profit guidance has David Jones given for the first half including Christmas?
David Jones expects first‑half net profit, including the Christmas period, to be down roughly 15%–20% compared with last year, according to the article.
Will the refurbished Chadstone and Warringah Mall stores help David Jones’ sales?
Yes. The article states the freshly refurbished stores at Chadstone and Warringah Mall are expected to deliver a standard lift in sales and are factored into the company’s guidance.
How does David Jones compare to rival department store Myer from an investment perspective?
David Jones is often compared with Myer but differentiates itself by focusing on exclusive brands and a wealthier customer base. The article says the two companies’ investment metrics are similar (with only about $5 million separating their net after‑tax profit this year), though the author currently prefers Myer for its improving profitability.
What strategic plans has David Jones pursued and what’s coming next?
In 2008 David Jones set a five‑year strategic plan that anticipated up to 10% growth in after‑tax profits, up to eight new stores, 14 refurbishments and a new financial‑services model. CEO Paul Zahra is working on the next plan, which the article suggests will likely be more modest and will be unveiled next year.
Is David Jones considered undervalued or a good buying opportunity right now?
The article says that in better times David Jones could be worth much more than its present share price of about $2.79, but given current weak sales and a sombre consumer outlook analysts remain cautious. The writer indicates a preference for Myer at the moment rather than David Jones.
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