Woolworths payout from David Jones gives joy after long struggle

Woolworths shares gained as much as 6.1% in Johannesburg, the most since August.
Image: Carla Gottgens/Bloomberg

Woolworths Holdings’s efforts to restructure Australian business David Jones have been rewarded with a special dividend, a signal the department-store chain may finally start to deliver for its South African owner after almost eight years.

The retailer has “taken out significant amounts of costs” at David Jones and “dealt with what was an ill-informed foods strategy,” Woolworths Chief Executive Officer Roy Bagattini said in a Wednesday interview. The food unit is “going to break even this year, which is very positive,” he said.

Read: Woolworths reports steep H1 profit slump

The upshot was a payout of A$90 million ($65 million) to Cape Town-based Woolworths, which will be used to reduce debt in South Africa. David Jones ended December with A$347 million in cash.

The result represents a rare piece of good news since Woolworths bought the near 200-year-old David Jones for $2 billion in 2014 as part of a push to expand across the southern hemisphere. The acquisition has proved to be nightmare, leading to writedowns, an annual loss and the departure of ex-CEO Ian Moir in early 2020.

Possible sale

“I gave shareholders a very clear undertaking shortly after I joined the company that we would not sink further cash into David Jones and we’ve stuck to that,” Bagattini said. “It’s pleasing that we’re in fact able to do the opposite now. I’m feeling much more positive about where we are sitting.”

Woolworths shares gained as much as 6.1% in Johannesburg, the most since August.

The CEO said last year he was aware of speculation about the possibility of selling David Jones, though he reiterated Wednesday the improvements need time to bed in. They need a “a moment to get traction,” he said.

The billionaire Weston family’s $5.4 billion sale of iconic London department store Selfridges & Co. in December shows there is some appetite for deals in the sector, said Bloomberg Intelligence analyst Charles Allen. But regarding David Jones, “it would make sense to see what the performance is like when tourists return,” he said, referring to the lifting of Australia’s protracted coronavirus travel bans.

Online food 

Woolworths has the strongest balance sheet since before the David Jones purchase, with debt down R7 billion ($452 million), and the group is taking advantage by accelerating its South African online food sale options.

“We were at a standing spot when the opportunity and the demand spiked,” during the pandemic, Bagattini said.

Woolworths has expanded its click-and-collect offering and started an on-demand delivery service to challenge larger rival Shoprite Holdings’s app. The CEO plans to triple the number of stores using the service to 100 by year end.

© 2022 Bloomberg

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