DJs forecasts profits plummet as share price dives

David Jones (DJS:ASX) has announced it expects a 35-40% fall in profits for 2011/12.

The market was not impressed with the forecast, with David Jones’ share price plunging 12.45% in the first 20 minutes of trade this morning.

As part of a turnaround plan it will dramatically increase the number of products available online this year, and work with suppliers to price them competitively against overseas online retailers.

The department store chain reported a 19.6% fall in profit for the six months to January 28, compared with the previous six-month period and was put into a trading halt on Monday amid media speculation over the CEO Paul Zahra’s position.

Zahra’s position at the company became more secure with the February resignation of his top leadership rival, finance director Stephen Goddard.

“Paul Zahra has the full and unwavering support of the board,” chairman Bob Savage said in a statement yesterday.

The turnaround strategy David Jones announced to the ASX today included:

• A ten-fold increase in products available online – from 9,000 to 90,000 – by Christmas.
• Efforts to work with suppliers to match pricing with overseas online competitors.
• More money to be invested in technology and customer service
• Plans to increase the number of stores from 36 to 42
• Increased revenue from store credit cards.

In a statement, the company said “challenging trading conditions and the cost of clearing excess inventory” contributed to the big profit downgrade.

Many Australian retailers are playing catch-up in the online space, with Amazon having been selling consumer products online since 1994.