David Jones sales slip

Department store retailer David Jones Limited (ASX: DJS) has reported a 3.4% fall in same-store-sales for the three months to April.

The unseasonably warm start to winter impacted on the retailer, particularly in womenswear, while David Jones’ Home category was again adversely impacted by sales of Electronics, which continue to be subject to industry and price pressures. TVs and associated electrical equipment face continued competition from pure online and offshore sellers, and that could have an impact on consumer electronics retailers like JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings (ASX: HVN).

David Jones also noted that it was continuing its strategy of reducing discounting, removing its $10 million Floor Stock Clearance event, and the mid-season sale was reduced by one full week. The retailer also stated that the current breadth and depth of discounting doesn’t appear to be sustainable, and it had seen a number of brands looking to convert their distribution arrangements to department store exclusive agreements. DJ’s has recently added Givenchy, Pucci, Joseph, Finders keepers, Gumboots and Sunseeker brands to its stable.

Ongoing heavy discounting is expected as other retailers get rid of excess winter stock, which may force David Jones to discount stock to maintain its market share. Myer Holdings (ASX: MYR) is likely to be in the same position, having recently reported like-for-like sales growth of just 0.4%.

On a more positive note for David Jones, high margin beauty, menswear and childrenswear categories continued to deliver growth. CEO Paul Zahra also noted that the company will become the first Australian department store to accept the national Chinese credit and debit card UnionPay. “The represents a good sales opportunity for us given that over 700,000 Chinese nationals visit Australia annually and the average transaction size on the UnionPay card is the highest in the world,” he said.

Foolish takeaway

Investors clearly didn’t like the fall in sales growth, with shares in David Jones falling more than 5% in mid-morning trade. For long-term investors, the current price may represent an opportunity to pick up a quality, high yielding stock – the current dividend yield is 6.9% full franked.

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Motley Fool writer/analyst Mike King owns shares in David Jones and JB Hi-Fi.

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