David Jones sales down but profit up, Service sector shrinks in July: Economy roundup

Retail giant David Jones has announced a 5.3% decline in full year sales, but has managed to reaffirm its guidance for 12% profit growth in the 2008-09 year.

Shares in the company have fallen by 6.9% to $4.89.

“Our pleasing sales performance in 4Q09 (fourth quarter), coupled with our tightly managed costs and well managed inventory and gross margin for the year, and the performance of our David Jones American Express card, has meant that we reaffirm our 2H09, FY09 and FY10 PAT (profit after tax) growth guidance,” David Jones chief executive Mark McInnes said in a statement. ??”Having said that, our business has a track record of being ‘first in and first out’ of a downturn and our sensible investment in inventory, marketing and service means we are well positioned to leverage the upturn when it eventuates.”

The company’s full year sales fell by 5.3% to $1.99 billion, while like-for-like sales fell 6.9%. In the fourth quarter, sales increased by 0.6% to $512.3 million, but dropped 1.2% on a like-for-like basis.

The company said it expects to deliver a second half net profit between 20-30%, while a full year profit of between 8-12%.

Meanwhile, a new survey shows that activity in the services sector contracted during July as consumers continued to reduce their spending.??The Australian Industry Group-Commonwealth Bank Performance of Services Index (PSI) dropped by 6.1 points to 44.1 in July, moving back below the 50-point level separating expansion from contraction. ??”The PSI demonstrates that business conditions remain volatile and problematic,” AIG chief executive Heather Ridout said in a statement. “While the trend suggests the pace of contraction in the sector appears to be easing there were signs of the fragility of consumer and business confidence.”??”The result underlines the fact that the path to recovery is not going to be smooth.”

The Australian sharemarket has opened flat today despite Wall Street stocks reaching a nine-month high overnight and higher commodity prices.

Shares flat despite rises on Wall Street

The benchmark S&P/ASX200 index was down 1.2 points or 0.03% to 4308.1 at 12.00 AEST. The Australian dollar, however, has reached a 10-month high and is currently trading at US84c.

Westpac shares fell by 0.5% to $22.10, with Commonwealth Bank shares also falling 2% to $43.63. ANZ also lost 2% to $19.18, as NAB lost 0.9% to $25.61.

Ten Network Holdings shares fell by 2% to $1.22 following the company’s $138 million capital raising, which the company said will be used to pay down debt.

“We are very pleased with the support investors have shown in the placement,” executive chairman Nick Falloon said in a statement. “The capital raised will be used to pay down debt and enhance balance sheet flexibility.”

New figures from the Australian Bureau of Statistics show the trend estimate of the balance on goods and services was a deficit of $288 million in June, while the balance was a $441 million deficit in seasonally adjusted terms – a decrease of 40% on a revised deficit in May.

On a seasonally adjusted basis, goods and services credits rose by 2% to $20 billion, while goods and services debits jumped by $13 million to $20.8 billion.

Financial markets have hit bottom, AFIC chief says

Meanwhile, managing director of the Australian Foundation Investment Company, Ross Barker, has told Business Spectator that financial markets have reached their lowest point.
“The majority of commentators would say that yes we have passed the bottom. I think in my view we have too,” he said. ??”I don’t think we’d want to go quite so far as saying it’s a new bull market because there are still a lot of the ramifications of the economic downturn around the world to flow through profit results, so we’ll be looking at this upcoming profit season to see what the companies are saying about the outlook.”?
Overseas, Wall Street enjoyed nine-month highs after new financial data showed some slow improvement, along with a 2.5% gain in the Dow Jones Home Construction Index.

The Dow Jones industrial average gained 33.63 points, or 0.36%, to 9,320.19.