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David Jones (DJS)

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.


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