Investors have baulked at David Jones’ ambitious plans to revamp its customer service and boost online sales after digesting news that full year profits could slump by as much as 40 per cent.
David Jones shares slumped 11 per cent, or 30 cents to $2.43 to its weakest close in a month.
Analysts also questioned whether the upmarket retailer could reverse its declining profits amid the toughest retail conditions in 50 years.
The troubled department store chain has set aside up to $80 million a year to bring the new plan to fruition, after it unveiled a near 20 per cent slide in first half earnings.
David Jones on Wednesday said that it planned to open six new stores, create 100 new floor staff supervisor jobs plus 200 frontline service to help improve customer service, and would also improve its online offering.
Chief executive Paul Zahra struggled to reassure investors with predictions of flat sales growth in the second half.
“We’re investing for the future, otherwise it would have been death by a thousand lashes,” Mr Zahra told analysts at a briefing. We are investing to become more relevant through technology investment and investing in people.”
He said the spending to improve service would come at the expense of short-term profits and the company had taken a conservative view with its planning.
“We will be fully able to leverage the upside when it comes, and it will come,” Mr Zahra said.
However, Mr Zahra refused to give a breakdown of the costs of the revamp compared to the economic benefits.
Under Mr Zahra, the company’s share price has more than halved after reaching $5.24 in September 2010, just months after Mr Zahra replaced disgraced chief executive Mark McGuiness.
The company reported a 20 per cent fall in net profit, down from $105.7 million to $85 million and warned full-year profit would be down by 35 to 40 per cent.
It said the company would not increase capital expenditure, which was expected at between $70 million to $80 million per a year, as it reallocated funds.
Shares in the company came out of a trading halt on Wednesday as it announced that it expected flat earnings growth in its financial services business in the second half of 2012 and fiscal 2013.
It will forego $7.5 million in profits over the next 18 months as a result but was expected to improve from 2014.
The company said the growth of the company’s financial services business had not been in line with what was anticipated.
David Jones expects 10 per cent of its total sales to be generated through the its internet-based web store, mobile applications and social commerce site.
An analyst, who did not want to be named, said the company was taking a conservative view around its sales outlook, which was driven by economic conditions.
“It feels like you’re beholden to the macro environment rather than looking for initiatives within that can drive like-for-like sales growth or sales-per-square-metre growth.
“Without decent sales-per-square-metre growth, it feels like profitability will be challenged for a long time to come.”
