Given the apparent inevitability that it will be subsumed into South Africa’s Woolworths group, today’s third-quarter sales numbers for David Jones are somewhat academic. Despite a myriad of distractions, however, Paul Zahra has produced probably the best sales numbers in his tenure as chief executive.
Despite the boardroom convulsions and tensions with management that saw the group’s chairman and two other non-executives depart, the "merger of equals" approach from Myer and finally the successful $2.15 billion overture from Woolworths, David Jones lifted sales 4.1 per cent in the quarter.
On a comparable stores basis, sales were up 2.4 per cent. If the electronics category (which has been out-sourced to Dick Smith) were excluded, like-for-like sales growth would have been 3 per cent.
The increase in sales was the third consecutive quarter of growth in total sales and the second in comparable stores sales, an indication that Zahra’s strategic plan is beginning to show up in David Jones’ performance.
The result was in contrast with that of the group’s major competitor, Myer, which suffered a slight downturn in total sales in its third quarter. Myer’s comparable stores sales growth was only 0.24 per cent, with Bernie Brookes saying the group got caught short of stock at a time when it was surprised by the strength of demand.
If Myer’s self-inflicted lower rate of growth is paired with today’s stronger-than-expected numbers from David Jones, it does suggest that there has been a meaningful and positive shift in consumer attitudes after several years of very weak trading for the two big department store groups.
Even the Myer numbers were respectable when compared with the difficulties being experienced by the two big discount department store groups, Target and Big W.
The impact of the growing number of big foreign retailers entering the market is yet to be fully seen but it could be that the visibility of some of the launches of those new retail brands in spaces adjacent to David Jones’ and Myer’s flagship stores has had a positive spill-over effect on the two full-service department stores.
A pick-up in trading at the upper end of the department stores’ market would be good news for Woolworths, given the massive 39 per cent premium it has offered over David Jones’ three-month volume-weighted share price before its offer became public – a share price already inflated by Myer’s merger proposal.
Woolworths, of course, does plan a fairly radical change to the David Jones business model by introducing a much higher proportion of private label product and extracting about $130m of mainly revenue-related synergies from the acquisition. Therefore its current performance isn’t as relevant as it might have been if the South Africans were planning to manage it on a business-as-usual basis. It will, however, be encouraged by the growth in David Jones’ sales and customer base and the 190 per cent increase in its online sales.
Woolworths has gained Foreign Investment Review Board approval for its proposed acquisition. David Jones’ board today reiterated its endorsement of the takeover, albeit with the usual qualifications of there being no superior proposal and that the offer, to be effected via a scheme of arrangement, gets a ‘’fair and reasonable’’ tick from an independent expert.
Given the price tag Woolworths has put on the group, the prospect of a superior proposal emerging is remote. The shareholder meeting to vote on the scheme will be held late next month.