Department store David Jones has revealed a rise in sales for the first half of fiscal 2014, pegging the fashion category as one of its strongest performers.
The company, which is currently musing over a merger with rival Myer, posted total sales for the half year of $1,042.3 million, up 3.8 per cent on the corresponding prior year period (1H13: $1,003.8 million).
Like-for-Like (LFL) Sales for the half were also up 1.1 per cent.
Despite the rise in sales, however, David Jones suffered a 4.6 per cent drop in profit after tax, reporting a figure of $70.1 million for the half year ended January 25, 2014. This is compared to $73.5 million in the previous corresponding period last year.
Overall, however, David Jones said the fashion, beauty and homewares categories performed strongly.
As a result, the company has confirmed that, as part of its new stores and refurbishment programs the David Jones will be changing its category mix. This will see the allocation of store selling space from 60:40 fashion and beauty vs home, to a 75:25 mix.
According fashion and beauty being higher margin categories will over time help improve the company's GP margin. By the end of calendar 2014, 10 stores within the David Jones portfolio of 38 stores will have a 75:25 category mix.
In March 2013 the company announced its plan to increase its private label business to 10 per cent of total sales.
During the half, the company also rolled out new private label merchandise across categories such as jewellery, shoes, bags, small leather goods, men's and women's basics, childrenswear, business shirts, ties and knitwear. David Jones is aiming to achieve its 10 per cent target by FY17.
The company also revealed a number of new customer segments that it is targeting, to deliver incremental sales growth. These include:
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The inbound Asian tourist market which the company has targeted through the acceptance of UnionPay, employing 140 front line staff fluent in Cantonese and Mandarin and the introduction of new promotional events such as Chinese New Year;
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The Activewear market through the addition of leading Australian activewear brand Lorna Jane in a department store first;
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The Career Wear market which is valued at approximately $400 million p.a. The Company is aiming to capture a significant proportion of this market over time.
In 1H14 the company also completed the roll out throughout its store portfolio of traffic analytics and is progressing the roll-out of complimentary wi-fi, according to David Jones CEO and managing director Paul Zahra.
“Complimentary in-store wi-fi is a great tool for acquiring customer email addresses and engaging with customers. Traffic analytics enable us to accurately ascertain foot traffic into our stores. This information is used in conjunction with our recently rolled-out Daily Productivity Reports for individual front line staff to ascertain and benchmark conversion of foot traffic into sales,” he said.
Online growth will also be a major focus going forward.
The David Jones' online store also grew significantly and was up 220 per cent on the corresponding prior year period.
The company has flagged its intent to have online sales to constitute 10 per cent of total sales by FY18.
As a key component of this, the company’s OCR strategy going forward will be increasing its digital contacts and the roll out of its Customer Data Analytics program.
Commenting on the results, Zahra said the figures this half reflect the momentum that the company's Future Strategic Direction Plan is gaining.
"Our Future Strategic Direction Plan is gaining momentum and delivering results.
"Our Department Store business is delivering good EBIT growth. We have a strong brand and market positioning which holds us in good stead for future growth. "We have a robust business model with good growth prospects and we continue to be committed to paying out not less than 85 per cent of PAT to shareholders as fully franked dividends,” Zahra said.
The company has now completed the second year of implementation of its Future Strategic Direction Plan.
This has included the injection of a Cost Price Harmonisation program, which is now embedded in the business.
“All new brands are price harmonised before they enter the business,” Zahra said.
"There have been significant retail price reductions across our business as we have implemented our Cost Price Harmonisation program in conjunction with our international suppliers. The key objective of this program was to ensure our prices are more aligned with our international peers. "I am pleased to report that these price reductions have been more than offset by volume increases and we have maintained our GP Margin percentage throughout this process.”
Going forward, Zahra said the company will continue to keep an eye on its cost management.
“We have a number of additional CODB efficiency programs that are scheduled to be rolled out across the period 2H14 through to FY16. The savings delivered by these programs will go some way to offsetting the cost increases that we expect in our business in areas such as labour and property.
“We also plan to exit low productivity stores as their leases expire. We have six leases in less robust demographies due to expire in the next five years. These lease expiries give us the opportunity to review our store portfolio in light of our broader OCR strategy. In this regard we have decided not to renew the leases at our Birkenhead Point (NSW) and Harbour Town (QLD) warehouse stores,” Zahra said.