Spending upturn will take time, DJs warns

David Jones boss Paul Zahra said the upmarket department store noticed a slight improvement in its sales trajectory in the weeks after the federal election, but he expected 2014 to be a challenging year, with better times for discretionary retail unlikely to emerge until 2015.

He said he would harness new technologies, the online world and other innovations at his bricks-and-mortar stores to prepare David Jones for the return of buoyant trading conditions that have been mostly absent since the global financial crisis.

Unveiling a 6 per cent slide in net profit to $95.2 million for the year to July 27, Mr Zahra updated the market on his plan to transform the 175-year-old chain into a leading online player, creating a seamless omni-channel platform linking physical stores to the online site.

In fact, David Jones' bricks-and-mortar stores look likely to provide a sizeable earnings kick in coming years, with Mr Zahra also revealing the chain would seek to exploit the "air rights" above its Market Street store in Sydney, to develop apartments or a hotel.

Mr Zahra was tight-lipped on the opportunities being explored but said the property cycle was starting to turn, with the fact David Jones owned its flagship stores meaning a lucrative property deal could be on the cards.

Reporting the chain's full-year results - which saw underlying profit rise 0.5 per cent to $101.6 million once the impact of a $9.1 million charge relating to its deal with Dick Smith to hive off its electronics category was stripped out - Mr Zahra said there had been an upturn in performance since the change of government this month "but it is early days". He said a sustained shift in consumer sentiment would likely only occur once the new government had fully announced and implemented its policy agenda.

"We have said that fiscal 2014 will continue to remain challenging - I think until the government annunciate their policies there is still a level of uncertainty - and we expect fiscal 2015 to obviously be a better year based on what we know to date," he said.

Investors were upbeat after David Jones' result, with shares gaining almost 5 per cent to $2.99.

The cost of doing business to sales rose 110 basis points to 32.9 per cent during the year, with the jump explained by a rise in wages, provisions for short-term executive incentives and customer service investments.

Deutsche Bank retail analyst Michael Simotas said David Jones' underlying profit was about 4 per cent above expectations.

"Costs were slightly below our expectations but a key disappointment for us was the much-weaker-than-expected gross margin expansion," he said.

"Second-half gross margins only grew by 45 basis points, which was notwithstanding a very easy base comparison [down 140 basis points in the second half of 2012].

"We wouldn't be surprised if this drives downgrades to consensus earnings in fiscal 2014."

David Jones declared a final dividend of 7¢ a share fully franked, taking the payout for fiscal 2013 to 17¢ a share fully franked.