Oz retail giant's profit rises 25%

David Jones Ltd, Australia's second-largest department store chain, said first-half profit rose 25 percent on Christmas demand for clothing and cosmetics.

Net income was A$89 million ($82 million) in the half ended Jan 26 from A$71.1 million a year earlier, David Jones said yesterday. The Sydney-based company maintained its forecast for second-half profit to gain as much as 13 percent.

David Jones, the best-performing retailer in Australia's benchmark index since Mark McInnes became chief executive officer in 2003, is preparing for an expected slowdown in the country's consumer spending with domestic interest rates at an 11-year high. It plans 74 cost-cutting initiatives ranging from renegotiating with suppliers to using more efficient lighting.

"They have put everything in place to manage any slowdown, which hasn't shown signs of biting much yet," said Tony Pearce, who helps manage the equivalent of $3 billion of equities at Legg Mason Asset Management in Melbourne. "It's a great result and shows high-quality management of the business."

David Jones shares gained 17 cents, or 4.8 percent, to A$3.71 at the 4:10 pm close of trading in Sydney, paring this year's decline to 33 percent.

First-half earnings before interest and tax from department stores rose 27 percent to A$118.4 million, boosted by demand for shoes and clothing as the company uses international designer fashions to lure affluent customers.

Sales for the first half rose 9.5 percent to A$1.1 billion. So far in the second half, revenue from stores open at least a year are rising at the top of McInnes' forecast for growth of between 1 percent and 2 percent.

McInnes increased his gross profit margin, which measures earnings as a proportion of revenue, to 39.8 percent in the half from 39.5 percent a year earlier.

The retailer is targeting a margin between 39.5 percent and 40 percent in each of the next four years, as he seeks to emulate the success of overseas chains such as Macy's Inc and Nordstrom Inc.

Macy's, the second-largest US department store operator, has a margin of 40.4 percent and Nordstrom's margin is 37.4 percent.

"We have taken a hard-line approach to inventory and cost management in our business," McInnes said in a statement. "We have utilized the strong economic climate over the past 18 months to put in place measures to ensure we are well prepared to address the expected slowdown in consumer spending."

McInnes' plans to boost profitability include changing the company's air conditioning systems, centralizing packing and shipping tasks, and using technology to automate inventory ordering and handling.

Financial services earnings rose 6 percent to A$18.4 million as more customers put purchases on their store card, which can only be used in David Jones outlets.

McInnes is teaming up with American Express Co for a company-branded general credit card to tap a greater share of the A$36.9 billion Australians charge to their accounts each year.

Agencies

(China Daily 03/27/2008 page16)