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David Jones impairment knocks Woolworths into annual loss

On the back of restructuring costs at its Australian unit and poor performance in its clothing business at home.
Sales of the Cape Town-based company rose 1.6% to R75.2 billion. Picture: Moneyweb

Shares in South African retailer Woolworths slid to a six-year low on Thursday after it reported a R3.5 billion ($239.13 million) annual post-tax loss, hurt by a hefty write-down on the value of its David Jones business in Australia.

Read: Woolworths’ quest for Southern Hemisphere domination loses steam 

Woolworths paid a big premium to bulk up in Australia via David Jones as part of Chief Executive Ion Moir’s ambitions to turn the firm into a leading southern hemisphere retailer, but has faced delays in redeveloping the business.

Woolworths booked an impairment charge of R6.9 billion against the carrying value of David Jones as a result of the cyclical downturn and structural changes that have hurt performance across the Australian retail sector.

“2018 has been a difficult year,” Moir said. “Significant costs and disruption from transformation initiatives in David Jones and poor performance in our fashion business in South Africa have led to a result which is disappointing.”

Woolworths reported a loss after tax of R3.5 billion in the year to end June versus a profit of R5.4 billion  in the year before.

Shares in Woolworths fell 6.8% to R48.01 in early trade, a level last seen in June 2012. At 10:45 GMT, shares were down 1.71% at R50.67.

Woolworths, which sells groceries, food and homeware, said headline earnings per share (Heps) for the year to June fell 17.7% to 346.3 cents from 420.9 cents a year before, while sales rose 1.6% to R75.5 billion. 

David Jones on new growth path

During the year David Jones put in place new merchandise and finance systems and a new online platform, repositioned its food business and moved its head office from Sydney to Melbourne.

Moir said he is starting to see the benefits of the restructuring in improved sales momentum. David Jones’ full-year sales were 0.9% lower, while sales for the first seven weeks of financial year 2019 were up 3.7%.

The department store chain is also investing 200 million Australian dollars ($146.32 million) and raising another 200 million Australian dollars from concession partners to refurbish its Elizabeth Street store, due to be completed by mid 2019.

These partners include luxury brands Louis Vuitton , Gucci, Chanel and Disney. The revamped store will include a luxury “shoe heaven” floor and a children’s world.

“Department stores are not dead,” Moir said. “The key to future department store success is through brand exclusivity and private label.”

Moir said David Jones has also secured exclusive retail agreements with Scotch & Soda, Nautica, Loewe, Kenzo, Isabel Marant, Burberry Beauty and Christian Louboutin Beauty, and said it is in advanced discussions with other key international and Australian brands. 

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