By Claire Reilly
SYDNEY, NSW: Australian retailer David Jones has announced that it expects profits to experience a serious decline in the next six months, with key competitor Myer announcing a similarly grim outlook.
Rather than storming into Bastille Day with the news, the announcement was made by David Jones last night. In a statement released by to the Australian Securities Exchange (ASX), David Jones CEO Paul Zahra said, “The dramatic and rapid deterioration in trading conditions in 4QFY2011 has been unprecedented.
“As a result we are taking a cautious approach to 1HFY2012 and have planned and forecast trading conditions to continue to be challenging,” he said.
Zahra said that the company was expecting profit after tax (PAT) for the first half of the 2012 financial year to decline by “approximately 15% to 20%” compared to the same period in 2011. This decline – which equates to a PAT forecast of $84.5 million to $90 million – was due to “expected negative sales and action to manage inventory levels,” said Zahra.
“By resetting our Sales budgets we will be better able to manage our Inventory and Variable costs,” he said.
Despite the bad news, Zahra said he was confident the David Jones Business model would allow the retailer to trade through the “difficult times” and “leverage the benefits from better trading conditions”.
“We will continue our investment in our online business, our new point of sale system, our financial services business, our brand installations, store refurbishments and our Brand,” he said.
David Jones’ key competitor Myer also issued some decidedly sobering news today with the release of its financial year 2011 guidance.
The statement was released to the ASX to “ensure the market is fully informed in the context of competitor announcements and other retail sector analysis” according to a spokesperson.
In the guidance statement, Myer noted that it “anticipated trading conditions would remain challenging for the remainder of FY2011.”
“Subject to no further deterioration over the final two weeks of our financial year trading, Myer continues to expect net profit after tax (NPAT) for FY2011 to be up to five percent below last year’s NPAT of $169 million.”
The news from DJs and Myer paints a grim picture for retail, especially when viewed alongside July consumer sentiment data, taken from the Westpac – Melbourne Institute Survey of Consumer Sentiment which was released yesterday. The Index of Consumer Sentiment fell by 8.3 per cent in July, dropping to 92.8 from the June figure of 101.2.
Westpac's Chief Economist, Bill Evans, said that the figures were the lowest since May 2009.
“This is a surprisingly weak result,” said Evans. “The only other time in recent history when the Index has been sustained around the current level [aside from May 2009] was during the period following the GST introduction which also coincided with the bursting of the ‘dot com’ bubble.
“We then have to go back to the deep recession of the early 1990's for the next period of comparable weakness in the Index.”
“It appears that a combination of concerns over the European financial crisis; the ongoing impact of the seven interest rate hikes between October 2009 and November 2010; and uncertainty about the introduction of a price on carbon; are now really undermining the confidence of consumers.
“Not only is the level of the Index disturbingly low but the sheer magnitude of the fall is also remarkable,” added Evans. “Such large falls have typically been associated with a major event such as an interest rate increase; a spike in petrol prices; the collapse of Lehmans; or recession fears.”
While Evans was quick to point out the research was conducted prior to the release of details on the Federal Government’s carbon pricing scheme, it did take into consideration Australia’s “very low unemployment rate of 4.9%”.
The employment outlook for the July Report is set to be released tomorrow.