Upper end retailer David Jones has benefited from the recent rounds of income tax cuts, by delivering a stronger than expected sales revenue growth of 5.4% to $454.6 million for the fourth quarter of 2006 financial year.
The fourth quarter of the 2006 financial year covers the period between April 30 and July 29, 2006 – a quarter which saw an interest rate rise and higher petrol prices.
Despite the negative factors, David Jones’ sales increased by 4.4% to $857.3 million from $821.4 million in the second half of 2005. Whilst, sales for the full year is 1.2% higher to $1.81 billion in FY06 compared to $1.79 billion in FY05.
David Jones chief executive Mark McInnes said the company was delighted with the 4Q06 sales performance and the sales in this quarter were stronger than expected and this was a key driver for the increased PAT growth guidance.
McInnes said on an AIFRS basis, the equivalent PAT guidance for 2H06 is $24.5 million – $26.5 million.
“Our Sales this quarter was the result of a strong performance across all categories including our Womens, Mens and Childrens Apparel, Footwear, Accessories, Cosmetics, Homewares and Home Entertainment. We also performed well across all States, with Western Australia being the standout performer.
“Our strong Sales performance in 2H06 coupled with our success in reducing the company’s cost base, good management of our Inventory levels and Gross Margin levels at the top of our targeted range were all contributing factors to our 2H06 PAT growth guidance being increased to 24%-32% under AGAAP
($31 million – $33 million) compared to the Company’s previous guidance of 5%,” he added.
Jones Lang LaSalle’s retail research director David Snoswell said retail sales in this upper end department stores segment is unlikely go backwards.
He added the Reserve Bank’s interest rates rise will be a challenge for low income families with large mortgages, as well as Sydney homeowners with very large mortgages.
However, Snoswell said that despite the negative effects of the interest rates rises and rising petrol prices, the “David Jones” department stores retail segment will be offset to a degree by the income tax cuts and lower unemployment figures.
“David Jones and upper end retailers have profited from the Treasurers latest round of tax cuts because the people who shop at David Jones are most likely benefiting from these tax cuts.
“And add to that we have low unemployment and solid wages growth, so these people have more money to spend.” Snoswell added.
According to recent JLL Research, buoyant consumer spending has resulted in positive quarter of retail trade growth in the June quarter.
JLL found that in the June quarter, continued tenant demand provided steady rental growth in all regional, subregional and neighbourhood markets with net rental growth ranging between 0.8% to 1.5%.
Meanwhile, McInnes said that the broader retail cycle appears to be trending upwards in line with the view expressed by independent economic forecasters such as Access Economics.
“Whilst there are a mixture of positive factors such as tax cuts and negative factors such as interest rates and petrol prices impacting the economic outlook, independent forecasters in general expect favourable retail conditions in FY07 and FY08.
“The company is confident that its strong business model positions it well to continue delivering PAT and dividend growth in line with its previously stated guidance of 5% -10% p.a. PAT growth in FY07 and FY08. This guidance is on the increased forecast profit base of FY06 and is on an AIFRS basis,” McInnes concluded.
By Nelson Yap
