David Jones has hit its highest profit margin in the first half of FY23 since being acquired by its now former parent company, Woolworths Holdings Limited (WHL) in 2014.
In December 2022, WHL sold the 185-year-old department store to Anchorage Capital Partners for $100 million.
In a first half trading update, the outgoing owner confirmed the successful turnaround of David Jones with a “notable improvement” in its underlying operational and financial health.
David Jones recorded an increase in adjusted earnings before interest and tax (EBIT) of 246% on last year, with an EBIT margin of 8.3%, up 5.1ppts on the prior year.
For the period, turnover and concession sales increased by 31.8% and by 27.6% on a comparable store basis, with David Jones’ flagship and CBD stores reportedly performing ahead of expectations.
Sales in the last six weeks grew by 2.3%, trading space reduced by 3.6% relative to the prior period, and online sales contributed 17.2% of total sales, compared to 28.1% for the prior period.
David Jones' gross profit margin improved by 140bps to 36.4%, while expenses increased by 15.5% on the lockdown-impacted prior corresponding period.
Adjusted operating profit grew by 245.8% to A$106.5 million, returning an operating profit margin of 8.3%, compared to 3.2% in the prior period.
According to the interim results, David Jones accrued a higher turnover in revenue compared to its now former sister brand Country Road Group, another subsidiary of WHL. It was also the second-highest revenue stream for the group.
David Jones is now reported as a discontinued operation in the WHL’s interim results, following the agreement to sell its entire shareholding in the subsidiary.
As part of the transaction, WHL will retain the flagship property asset in Bourke Street, Melbourne, which will be leased back to David Jones on market-related terms.
The agreement is subject to terms and conditions customary for transactions of this nature, and WHL said it anticipates the transaction to complete by the end of March 2023, with the final proceeds to be determined based on completion accounts.
Management expects to realise value in excess of the carrying value of the David Jones assets. Over the past year, WHL has also returned R1.6 billion of capital from David Jones to WHL.
WHL added that the transaction will materially improve its return on capital by further transforming its balance sheet through the removal of c.R22 billion in liabilities (including c.R17 billion in liabilities relating to the David Jones store portfolio).
“Importantly, this also enables the reallocation of capital and management focus towards the Group’s core, and higher yielding South African businesses and the Australian Country Road Group,” the trading update read.