David Jones, Country Road sales tumble amid pandemic

David Jones' South African parent has appointed investment bank UBS to run the rule over its property portfolio in order to reduce debt, which could lead to the sale of its flagship stores, following a strong double-digit decline in sales amid the COVID-19 crisis.

In a trading update Wednesday, Woolworths Holdings also said its Australian lenders agreed to suspend covenant testing after it provided a loan of $75 million to David Jones. Woolworths also is offering an additional $25 million loan should the local operations need it.

"UBS Australia has been appointed to support [a review of the capital structure of the Australasian entities] and will conduct a full review of options relating to the Australasian property portfolio," the company said in a statement.

"Any proceeds generated as a result of our capital management initiatives will be applied to the repayment and cancellation of debt facilities."

The two flagship stores in Sydney and Melbourne could worth more than $800 million combined given David Jones previously offloaded its smaller Sydney Market Street building for $365 million.

David Jones has continued to trade in its 40-odd large format stores throughout the pandemic, but has been significantly impacted by lower foot traffic with store sales falling by 35.8 per cent in the eight weeks to April 30.

The department store was already suffering well before the virus hit. In February, David Jones said profits fell 57 per cent to $20 million in the December half due to heavy discounting, weak sales and slowing foot traffic.

Former Woolworths chief Ian Moir – the architect of Woolworths' $2.1 billion buy of David Jones in 2014 – handed over to former Levis Strauss boss Roy Bagattini in February. Mr Moir remains acting CEO of David Jones until a permanent replacement is found.

Mr Bagattini said on Wednesday that stablemate Country Road Group was severely impacted by the full closure of 280 stores given social distancing measures, which resulted in a 50.4 per cent drop in sales in the eight weeks to April 30.

He said the update reflects the "tough and unprecedented trading conditions that have dramatically impacted performance across the retail sector globally."

The only bright spot for the group was second-half online sales for David Jones which doubled compared with the prior corresponding period. Online sales at Country Road Group – which includes the Mimco, Trenery, Witchery and Politix brands – posted growth of 19 per cent in second half to date. CRG stores began their planned reopening as of 22 May.

Thousands of other retail stores have reopened their doors within the country's big shopping centres in recent weeks, with foot traffic steadily increasing as pandemic restrictions eased. Woolworths said the easing of restrictions has led to a positive uplift in footfall and an encouraging sales performance across David Jones.

Woolworths has long planned to operate a smaller David Jones network, but Mr Bagattini said COVID-19 has accelerated the talks with local landlords about a faster network restructure and reduction in floor space.

David Jones sold its Sydney CBD menswear location several years ago, and the women's store across from Hyde Park now houses the entire CBD business across 12 floors.

The Melbourne flagship store also had a revamp in recent years. Both could be sold and leased back as a result of the UBS review.

On Wednesday, Woolworths said contracts have been exchanged for the sale of its Bourke Street menswear building in Melbourne, with the sale price "in line with expectations".

David Jones' update comes as rival Myer kicks off its stocktake sale, offering discounts of up to 50 per cent off across manchester, cookware, homewares, beds and up to 40 per cent off certain women's and men's fashion. Myer has been slowly re-opening stores around the nation after a full network closure.

In April, Woolworth's had flagged a 20 per cent-plus drop in full year earnings due to COVID-19 decimating sales in clothing stores across Australia, New Zealand and South Africa.

The board on Wednesday scraped the final 2020 dividend and flagged that any distributions to shareholders will be suspended until the COVID-19 situation stabilises.