DJs shares halted amid profit concerns

Reports of a halving of profits from its credit card business, with an announcement expected after tomorrow's board meeting

Scott Phillips (TMFGilla)

Scott Phillips is The Motley Fool’s Chief Investment Officer in Australia. He is Advisor of The Fool’s flagship investment service, Motley Fool Share Advisor and the Portfolio Manager of Motley Fool Everlasting Income and Premier Portfolio, as well as running our most premium service, Motley Fool Platinum. He is passionate about investing, having managed his own portfolio for over 15 years. A dyed-in-the-wool Fool (in the best way), he has been a member of The Motley Fool since 1999. Scott holds a Bachelor of Commerce (Management) and a Graduate Diploma of Accounting. Before joining The Fool, Scott worked in various Sales and Finance roles in industry, which has allowed him to see the good, bad and the ugly of corporate management close-up. Giving him a great understanding of the way businesses run – and what separates the business wheat from the chaff – Scott wholeheartedly agrees with Warren Buffett when he said he was a ‘better investor because I am a businessman and a better businessman because I am an investor’. Scott left a successful career to follow his passion – helping our members achieve the best possible investment returns, and helping Australians learn to better manage their money. It’s no surprise he ended up at The Motley Fool.

Published March 19, 2012 10:35 am AEDT

David Jones Limited (ASX: DJS) has been placed in a trading halt on the ASX 'in light of a board meeting tomorrow to consider the company's strategic plan…'.

It's enough to scare any self-respecting David Jones shareholder (guilty, your honour).

Tough times

Retailing hasn't exactly been a shining light of the Australian economy over the past few years. From the high-profile closure of Borders bookstores as part of the RedGroup collapse to the horrible sales and profit figures (and resulting share price troubles) of Myer Holdings Limited (ASX: MYR), JB Hi-Fi (ASX: JBH) and Specialty Fashion Group Ltd (ASX: SFH).

Even usually-solid Woolworths Limited (ASX: WOW) hasn't been immune, with sales growth slowing and profits being hit by development spending on its Masters home improvement chain. The share price hasn't gone anywhere in 5 years.

Danger ahead?

But back to David Jones.

The Australian Financial Review reported this morning that DJs was 'preparing to confirm market fears of a 50 per cent drop in future credit card earnings' and that CEO Paul Zahra would 'unveil his blueprint' for growing the retailing side of the business later this week.

David Jones' credit card business is responsible for around one-fifth of the retailer's profits, so a halving of the profit from that part of its business – which is the reported impact – will have a significant impact on profit in the years to come.

Seemingly as a result of the story, David Jones asked the ASX for a halt to trading on its shares, pending the outcome of tomorrow's board meeting.

Good governance a positive, but work still to do

The David Jones board are to be commended for acting in the interests of all shareholders by responding to what may have been a leak of confidential information by halting trade in the company's shares. It gives all shareholders the opportunity to act on the same public information, after the company makes its announcement.

Zahra and his team will need to pull some serious strings to revitalise the company's core business. Getting profit growth of the size needed to offset the loss of the 'financial services' income won't be easy.

Foolish take-away

Investors can do little now but wait for the announcement and lifting of the trading halt. Like that of its retailing brethren, this is one story that may well get worse before it gets better.

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Scott Phillips is a Motley Fool investment analyst. Scott owns shares in David Jones and Woolworths. You can follow him on Twitter @TMFGilla. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).

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