DJs boss Zahra running out of excuses
It would have been a better outcome for David Jones chief Paul Zahra if there had been a sector-wide slump in retail shares this morning.
He could have camouflaged the horrible result and outlook delivered by the company by simply suggesting it was due to the poor external environment and the lack of consumer confidence.
Among retailers, only the outdoor equipment and clothing retailer Kathmandu - which also put in a disappointing result - experienced a similar share price collapse.
Retail stocks were not sold off generally. The David Jones performance is increasingly being seen as company specific.
Now more than two years into the tough retail conditions the fog is starting to clear on those retailers that are managing to adapt more quickly in the brave new world of retailing.
Zahra paints himself as a victim of three issues that are outside his control. The first is the soft retail environment, the second is the internet and the structural changes this entails and the third is the legacy left to him by his predecessor, Mark McInnes.
All these are reasonable to a point. If Zahra is correct (a position disputed by McInnes) that he was handed the keys to the department store chain with absolutely no online strategy and no IT systems to house one, it can be argued he has taken too long to get this off the ground.
He is clearly correct that retail is challenging with pay packets being parked in savings accounts rather than cash registers. But Myer’s result last week demonstrates that David Jones’ biggest competitor is not suffering to the same extent.
Zahra is forecasting full-year net profit will be down between 35 and 40 per cent. Myer is predicting its full-year profit will be off 10 per cent.
Zahra explains the disparity between the two by saying David Jones' customers tend to be from a higher socio-economic background, such as financial services employees, who are currently feeling the pinch.
But there is a cost of clearing excess inventory which has had a negative impact on profitability.
David Jones would argue that part of the McInnes legacy was the credit card deal done with American Express - the returns from which were front-loaded for the first five years.
Zahra has had to confirm this morning that when the credit card business stands on its own two feet in 2014 the earnings contribution will halve.