David Jones profits in tough times

MELBOURNE - Department store chain David Jones said annual profit rose 19 per cent, driven by cost cuts amid slowing consumer spending, and reaffirmed its forecast for lower earnings growth in 2006.

The company expects first-quarter sales to fall by up to 4 per cent because it is selling fewer big-ticket items like televisions. It reiterated its forecast for the 2006 financial year of earnings growth at the lower end of its 5-to-10 per cent target range.

"I think their business is in good shape given the environment's a bit tougher out there - they're certainly managing their business very well," said UBS analyst Michael Peet.

"We're looking forward to their capital management programme in November as another positive event," he said.

The department store operator posted strong sales growth in the first half of the year, but was hit by tougher market conditions in the second half as rising fuel prices and a slowing housing sector undermined consumer confidence.

David Jones, which competes against Coles Myer's Myer stores, said net profit for the year to the end of July was A$77.86 million ($86 million), in line with its forecast last month for earnings between A$77.5 million and A$78.0 million.

In contrast, Coles Myer last week said earnings from its 61-store chain of Myer department stores slid 46 per cent for the year to the end of July, including a second-half loss.

Coles Myer is seeking formal expressions of interest from potential bidders for Myer and is expected to decide late this year or early next year if it will sell the business.

David Jones was interested in buying up to 10 stores and had spoken to every private equity player in the industry who might be interested in buying Myer, said David Jones chief executive Mark McInnes. Coles Myer has said it does not plan to break up the Myer business.

"Our strategy is quite clear: we intend to return excess cash to shareholders. We're only interested in a handful of stores where we believe that they are more valuable in our hands than any other player."

The company has forecast 5-to-10 per cent profit growth in both the 2007 and 2008 years.

- REUTERS