The South African owner of David Jones has blamed Australia’s tough retail sector and its own execution delays for a significant writedown in the department store chain’s value.
Woolworths – which is not related to Australia’s supermarket chain of the same name – says it will take a $712.5 million writedown on the value of David Jones.
The non-cash impairment, largely to do with David Jones’ goodwill, represents about a third of the $2.1 billion that Woolworths paid for the Australian retailer in 2014.
Woolworths has told the Johannesburg Stock Exchange that a “cyclical downturn and structural changes that have impacted performance across the Australian retail sector” were behind the impairment.
“The impact of these changes has been exacerbated by poor or delayed execution in certain key initiatives,” Woolworths said in a statement.
David Jones’ main rival, department store chain Myer has been battling lower sales and last month issued a profit downgrade for the first half after a woeful start to the Christmas sales period.
Myer’s total sales in the first two weeks of December were down five per cent on the same period a year ago – a further deterioration on the company’s 2.8 per cent sales decline in the first quarter.
The latest official retail trade figures released earlier this month showed department stores were the only segment of the retail sector to not post a rise in sales in November.
Analysts have said the more costly department store model will struggle against more agile players, including recently arrived overseas specialty retailers such as Zara, H&M and Sephora.
Despite the tough conditions, Woolworths, which also owns Country Road in Australia, said it is committed to improving David Jones and will continue to invest in the business.
Woolworths earlier this month announced David Jones’s sales for the six months to December 24 were down 3.3 per cent, on a same-stores basis, on the preceding half year.
The company cut David Jones’s retail floor space by 2.2 per cent during the 2017/18 first half as part of an ongoing “space optimisation” program and in 2016 sold the retailer’s Market St, Sydney, building to Scentre Group.