David Jones Ltd., Australia’s second-biggest department-store chain, fell the most in almost 14 years in Sydney trading after cutting its profit forecasts.
The retailer dropped 15 percent to A$3.31 at 10:29 a.m. in Sydney, the biggest intraday decline since October 1997.
Profit after tax will drop as much as 12 percent in the fiscal second half ending this month to between A$62 million ($67 million) and A$64 million, Sydney-based David Jones said in a filing yesterday. That compares with a May 11 forecast for a 5 percent increase. Analysts at Citigroup Inc., Royal Bank of Scotland Group Plc, Deutsche Bank AG and JPMorgan Chase & Co. cut their ratings on the stock.
David Jones, which targets affluent customers with designer labels, expects an 11 percent drop in fourth-quarter sales amid volatile equity markets and falling property prices. Australian consumer confidence fell this month by the most since Lehman Brothers Holdings Inc. collapsed in 2008, and the nation’s economy shrank 1.2 percent in the first quarter, the biggest contraction in two decades.
“David Jones’s comments highlight how challenging retailing conditions are at the present, particularly for those at the higher end,” said Will Seddon, who helps oversee about $350 million at White Funds Management in Sydney.
Bigger rival Myer Holdings Ltd. affirmed its forecast that annual profit will fall as much as five percent. Myer dropped 6 percent to A$2.49.
“The dramatic and rapid deterioration in trading conditions in 2011’s fourth quarter has been unprecedented,” David Jones Chief Executive Officer Paul Zahra said in the retailer’s statement. “We are taking a cautious approach to the first half of 2012 and have planned and forecast trading conditions to continue to be challenging.”
Profit in the six months ending January, or the first half of the company’s 2012 fiscal year, may fall from 15 to 20 percent to A$84. million to A$90 million, the company estimates.
“David Jones sales tend to have a high correlation with movements in house prices and the Australian share market,” Craig Woolford, an analyst at Citigroup in Sydney, said in a report today. “Both asset classes have been soft over the past three months,” wrote Woolford, who cut his rating on the company’s shares to “hold” from “buy.”
Zahra took over from Mark McInnes, who resigned last year after a sexual-harassment lawsuit. David Jones and McInnes agreed in October to pay A$850,000 to settle claims of sexual harassment by a former publicist, the largest amount made public in such a case in Australia.
David Jones’s market value more than quadrupled from 2003, when the top job went to McInnes, through June 17 last year, the day before he quit. McInnes, who was often photographed with celebrities, signed agreements with companies including Polo Ralph Lauren Corp. and PPR SA to lure affluent shoppers, emulating the success that overseas chains such as Bloomingdale’s had with international designer brands. David Jones has dropped 13 percent in the period since McInnes left through yesterday.
Zahra was part of the team that executed McInnes’s strategy of luring wealthier customers with luxury goods. The retailer, founded in 1838, became the exclusive Australian department-store outlet for brands including Ralph Lauren Home, Ted Baker, and PPR labels Bottega Veneta and Yves Saint Laurent.
“We will continue our investment in our online business, our new point of sale system, our financial services business, our brand installations, store refurbishments and our brand, as we are confident that our business model will allow us to trade through these difficult times,” Zahra said in the statement.
Australia’s sentiment index plunged 8.3 percent to 92.8 from a month earlier, the biggest decline since October 2008 and the lowest level since May 2009, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers taken July 4-9 and released yesterday in Sydney.