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SYDNEY - David Jones, Australia's second-biggest department store chain, said first-half earnings will rise as much as 30 per cent from last year after stronger than expected sales over the Christmas period. The shares gained the most in 10 months.
Profit after tax may rise as high as A$70.9 million ($79.8 million) in the six months ending January 31, from A$54.5 million a year earlier, the Sydney-based company told the Australian Stock Exchange yesterday. David Jones previously forecast profit growth of as much as 13.5 per cent.
"That's certainly a surprise," said Scott Marshall, an analyst at Shaw Stockbroking in Sydney, who had expected a 13 per cent rise in profit.
"We were going for top-of-the-range profit growth and the company is going to surpass that. There have to be upgrades to analyst estimates."
Chief executive Mark McInnes, who uses designer brands to target affluent shoppers, is benefiting from a recovery in consumer confidence after record fuel prices and rising borrowing costs crimped spending last year.
Stronger than expected demand during the Christmas period and December and January sales would boost profit in the second quarter, which accounts for almost a third of total revenue.
"Sales in all categories, states, and stores were strong and exceeded our expectations," McInnes said. "We're expecting favourable retail conditions in the calendar 2007 year."
Shares of David Jones jumped A28c, or 6.9 per cent, to a record A$4.35 at the market close in Sydney, with about twice as many shares changing hands as on an average trading day.
The stock surged 79 per cent last year, beating the S&P/ASX 200 Index's 19 per cent gain, as the company defied slowing consumer spending and increased profits by ordering less stock and controlling costs.
Australia's consumers were the most buoyant in 17 months in January as a 30-year-low jobless rate, declining oil prices and a stock market at a record high bolstered demand in the face of three interest rate increases last year.
Harvey Norman Holdings, the nation's biggest electronics retailer, said on Monday that second-quarter sales rose 16 per cent, helped by demand for flat-panel televisions.
David Jones, which focuses on wealthy customers that are resilient to fuel and borrowing cost rises, flagged sales growth of 8 per cent to 9 per cent this quarter, twice as much as it predicted in November.
First-half sales might increase as much as 7.8 per cent, boosted by demand for clothing, cosmetics and iPods.
"In good consumer spending times, people trade up to aspirational department stores such as ourselves," McInnes said.
"Customers in general are feeling pretty confident."
Still, he said it was too early to update his forecast for second-half profit growth of as much as 13.5 per cent.
"He's being conservative, but if you read between the lines he's clearly saying he wants to upgrade the full-year profit outlook," said Marshall, who adjusted his estimates to predict 21 per cent earnings growth for the year.
McInnes is opening new stores for the first time in four years after a change in ownership at larger rival Myer.
He plans two new stores before 2008, with outlets at malls at Chermside in Queensland and Doncaster in Victoria, and will take control of the Myer store at Burwood in Sydney's inner western suburbs when its lease expires in April and rebrand it as David Jones.
In Melbourne, the company's flagship city store was trading ahead of budget since completing the refurbishment of its cosmetics section in October, McInnes said.
"We're thrilled about the performance," he said.
"The customer uptake has been nothing short of sensational."
- BLOOMBERG
