DJs chief warns of anaemic Christmas

BLAIR SPEEDY
November 22, 2012
The Australian

THE anaemic state of the retail market continues to shadow the major bricks-and-mortar chains as David Jones reported a razor-thin increase in sales for the first quarter of the financial year and warned that Christmas trading was unlikely to be substantially improved from last year.

DJs booked sales of $415.6 million for the three months to the end of October, up 0.3 per cent from the same period a year earlier, its first quarterly sales increase in two years.

But sales at DJs are still below the level of two years ago, and the company has now underperformed archrival Myer — whose chief executive, Bernie Brookes, says he still has to “fight for every sale” — for six straight quarters.

DJs chief executive Paul Zahra said middle-income shoppers were extremely reluctant to spend. “The designer and luxury end of our business is doing exceptionally well, it’s in significant double-digit growth, and the contemporary or youth end is also in significant and double-digit growth,” Mr Zahra said.

“It’s the mainstream customer that is more concerned about the future . . . they’re much more conservative, maybe a bit savvier in the way they’re approaching it, and we’re seeing them shop with us less, but they’re probably not shopping anywhere.”

Investors reacted by sending DJs shares down 16c, or 6 per cent, to $2.41, after the shares briefly touching an eight-week low of $2.37, their biggest one-day fall in four months.

Online shopping is also expected to continue to make inroads into traditional retailing. Ross McDonald, a retail executive at Google Australia, says the Christmas season will be the biggest yet for online shopping.

He said shopping-related searches at Google had increased 20 per cent year-on-year.

“And, with roughly 40 per cent of shopping searches now coming from smartphones and tablets, it’s not just about desktop: retailers who leave mobile shoppers out in the cold this Christmas stand to lose out,” Mr McDonald said.

Credit Suisse analyst Grant Saligari added that unless DJs could cut prices to win over increasingly value-conscious shoppers, sales growth was likely to remain hard to come by.

“The decline in mainstream (shoppers) indicates that further deleveraging and downtrading of middle Australia is still under way and also goes to the heart of DJs’ poorly perceived price proposition,” Mr Saligari said.

Mr Zahra said the savage discounting that had cut margins across the retail sector over the past three years had settled down, but DJs was still seeing annual deflation of 2-3 per cent, driven by plummeting prices for electronics, which analysts note continues to be exacerbated by the rise of online shopping.

“Our core categories of womenswear, menswear, beauty, accessories and shoes — which are all high-margin categories . . . are delivering exceptionally strong growth, but unfortunately they’re being outweighed by the home and electricals area where we’re experiencing significant decline,” Mr Zahra said.

JPMorgan analyst Shaun Cousins said the 0.3 per cent sales increase was unimpressive as it was achieved against an 11 per cent fall in the previous first quarter.

“That’s a pretty ordinary two-year stack,” Mr Cousins said.

Mr Zahra said sales were continuing to grow at about 0.3 per cent in the opening weeks of the second quarter, but with sales falling by 2.4 per cent in the second quarter of last year this would still leave DJs’ sales below where they were in 2010.

The company has yet to make any forecast for either sales of profit performance this financial year, but Mr Zahra said he expected sales over the crucial summer holiday period to be in line with last year.

“We’re planning for a flat Christmas,” he said.

Myer, which last week reported its strongest sales result in three years, is forecasting Christmas to be “at least flat”, while Richard Goyder, chief executive of Coles, Kmart and Target parent company Wesfarmers, says it “should be half-decent” in the absence of disasters.

The lukewarm outlook from the biggest retailers is at odds with a stream of increasingly positive forecasts from industry analysts, with IBISWorld and Roy Morgan tipping a 3.9 per cent increase in Christmas spending and a Deloitte survey of retailers finding 69 per cent were expecting Yuletide sales to be up on last year.