Woolworths aims for DJs turnaround
The company, which is unrelated to its Australian namesake, believes it can almost triple David Jones’ profitability, adding more than $130 million to its bottom line per year by 2019.
“We can transform this business,” Woolworths chief executive Ian Moir said.
David Jones announced the surprise takeover move on Wednesday and recommended its shareholders accept Woolworth’s $4 per share offer, which is 25 per cent more than DJs shares were trading at prior to the announcement.
The deal is subject to approval from shareholders and federal Treasurer Joe Hockey, and Mr Moir says Woolworths will walk away from the deal if it isn’t able to acquire 100 per cent of David Jones shares.
“We will get either 100 per cent or we will get nothing.”
The deal destroys rival department store Myer’s hope of a “merger of equals” with David Jones, and the company announced it had withdrawn its proposal on Wednesday.
But IG Market Strategist Evan Lucas said the Woolworths deal was good news for both David Jones and Myer shareholders.
He said the price offered by Woolworths would be very attractive to David Jones shareholders given its poor performance in recent years, while Myer investors would be relieved to have avoided what many saw as a bad deal.
“They have been released from something they didn’t need to be in,” he said.
“It would have diluted their share price…it was messy.”
He also said a turnaround on the scale Woolworths is talking about is possible, given Mr Moir’s track record, including as chief executive of Woolworths’ subsidiary Country Road.
“Ian Moir knows the Australian retail landscape a lot better than many people realise and there are certainly several things that can be done to improve the bottom line.”
Woolworths believes there is substantial scope to turn around David Jones performance, starting with an increase in the department store’s use of private label merchandise – products carried under DJs own brand, which typically boast higher profit margins.
Under the plan, private label products will make up around 30 per cent of David Jones’ merchandise and the department store will also carry more from Woolworths’ Country Road.
“Will you see more South African brands and more Country Road? Yes you will,” he said.
Woolworths also plans to boost David Jones’ online sales and to attract customers through the use of loyalty cards.
Mr Moir said the merger, which will create the second biggest department store business in the Southern Hemisphere, said the deal would allow the company to better compete both in Australian and South Africa.
“It’s a win-win situation not only for our shareholders, we believe it’s a win-win situation for our customers in South Africa and our customers here,” he said.
“When we add these two businesses together, the scale that we create is going to allow us to get really competitive pricing into play in both of these markets,” he said.
David Jones shares finished Wednesday up 72 cents to 3.91, while Myer climbed nine cents to $2.39.
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