Troubled David Jones weighs on investors
Investors are concerned that the group is pouring money into its failing Australian retail division
Multinational retailer Woolworths’s continued investment in troubled child David Jones is weighing on investors as the company fails to deliver a return on investment.
In the past two years, the stock has been the worst performer among its peers, declining by about 23% — while Truworths was up 14.96%, TFG rose 70% and Mr Price Group gained 67.85%. Investors are questioning whether further capital investment is justified.
Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said: "It’s difficult when you are writing off the value of an asset to put more money into it, so it’s very difficult to justify it."
In 2017, Woolworths spent A$56m (about R511m) to fix David Jones, while its other brands, like Country Road, received a capital injection of A$11m (about R100m) and Woolworths R619,000.
Takaendesa said that while Woolworths admitted that ploughing money into its Australian business hadn’t been a success, continued investments into its private label and the roll-out of the David Jones food division could prove beneficial to the beleaguered retailer. Last month, Woolworths announced it had reduced the carrying value of David Jones assets by A$712.5m after it admitted that it had overpaid for the business down under when it bought the retailer for A$2.1bn (about R20bn).
But Ian Moir, Woolworths group CEO, said the investments in David Jones would normalise after next year. Moir, who was seemingly apologetic about the group’s failures with the Australian business, told investors in Cape Town that "we’ve got to get this fixed, we are fighters not quitters".
"It’s a tough market and within that market David Jones is going through the most horrendous transformational programme," said Moir.
In attempts to re-engineer the David Jones brand, the group changed its merchandise systems, finance systems, moved head offices, launched a food business and was re-platforming its online business.
On Thursday, Woolworths interim results showed a marginal 2.5% increase in group sales to R38.8bn for the first 26 weeks of the 2018 financial year.
In the same period, headline earnings per share decreased by 15% to 206.3c per share while the interim dividend was down 18.4% to 108.5c per share.
Charles Allen, a senior retail analyst at London-based Bloomberg Intelligence, said Woolworths has not been able to correct faults in its Australian business although the group has since identified where it had gone wrong.
"Food in Australia is a longer-term project which is still in test phase," said Allen.
Woolworths Food division grew sales by 9.4%. Operating profit in the group’s food division was up 15.9%.