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The tide turns for David Jones

Department store retailer David Jones (ASX: DJS) has posted its first quarterly growth in sales in nine months, thanks to strong demand for its fashion brands and beauty products.

DJs reported total sales revenue of $424.2 million for the first quarter of the 2014 financial year, up 2.1% over the prior year’s period. Like-for-like sales, were up 0.6%, excluding the disruption impact of the Canberra Centre store refurbishment.

David Jones CEO Paul Zahra said, “Whilst it is still early days and we have to trade through the important second quarter, it is pleasing to see the company return to positive sales growth this quarter. Our Fashion  and  Beauty  categories  continued  to  deliver  sales  growth  whilst  our  Electronics category remained challenging.” Mr Zahra also reported that online sales increased by more than 1,000%, and the webstore had made a positive contribution to profit, before depreciation, in its first full year of trading.

As part of its strategy to become a ‘house of brands’, Mr Zahra noted that DJs has signed up many department store exclusive brands, including Valentino, Vince, Richard Nicolls, IRO, Carven, Stella McCartney, Sabo Skirt and Michael Lo Sordo. Earlier this week, David Jones announced that it had signed an exclusive agreement with German men’s suiter Hugo Boss, and has secured US Brooks Brothers on a department store exclusive basis.

Hugo Boss originally had an agreement with both David Jones and competitor Myer Holdings (ASX: MYR), but said its products were best aligned to the David Jones brand portfolio and customer base.

It seems the strategy is working for DJs, while at the same time the company has been exiting low margin categories, cut back on discounting and focused on higher margin categories such as fashion and beauty.

Consumer electronics retailer Dick Smith will be taking over the electronics categories in-store, but appears to have a difficult path ahead of it, with consumers preferring to shop online or at JB Hi-Fi (ASX: JBH) and Harvey Norman (ASX: HVN).

Foolish takeaway

David Jones is still facing increasing competition from a wave of international fashion houses setting up shop in Australia, including TopShop and Zara. So far the retailer appears to have kept them at bay, and may be able to further increase sales as its strategy matures. Foolish investors may want to add DJs to their watchlist.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. Follow Mike @TMFKinga

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