Department store retailer, David Jones Limited (ASX: DJS) has reported a 13.5% fall in net profit for the six months to January 2013, compared to the previous year.
The company reported a net profit of $73.5 million, on the back of a 0.7% decline in sales and ‘challenging’ trading conditions. Continued investment in its turnaround strategy resulted in higher costs of doing business, and David Jones’ strategy of improving its margins, by cutting the duration and depth of its discounting. As a result, gross profit margin increased by 1.1% to 39%.
Operating cash flow was dramatically lower at $114 million compared to $151 million the previous year. Net debt has been reduced to $64 million compared to $80 million in 2012. For income focused investors, the company will pay a 10 cent fully franked interim dividend.
On a positive note, online sales in the second quarter of 2013 grew by 288%, and sales were double the entire online sales achieved in the 2012 financial year. David Jones appears to be getting some traction in achieving lower prices from international suppliers, with 50% of the 250 brands commencing harmonisation of prices, a move that other retailers including Myer Holdings (ASX: MYR), Harvey Norman Holdings (ASX: HVN) and JB Hi-Fi Limited (ASX: JBH) are all undertaking. That will make it easier for David Jones to compete with online and offshore retailers.
New village format (smaller) stores are being opened and appear to be getting excellent results, with three new stores on track to open in 2014 and 2015. David Jones also noted that it could close some stores that weren’t performing all that well, when leases come due in the next five years.
David Jones also announced that it had hired CB Richard Ellis to advise the company on how best to maximise the value of its property assets. David Jones owns the land its flagship CBD stores are located on, and have an estimated value of around $600 million.
While declining to provide any guidance for the full year, David Jones’ transformation appears to be on track. Investors certainly appeared to like the results, with the shares up 5% at once stage, despite the overall market trading down.
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