South African retailer Woolworths Holdings has written down the value of its $2.1 billion investment in David Jones by a third, blaming the tough market and missteps for the department store’s waning fortunes.
Woolworths said overnight that it was recognising a $712.5 million non-cash impairment charge against the carrying value of David Jones, which it bought in 2014.
A spokesman said a “vast majority” of the write-down relates to goodwill and brands, which in June 2017 Woolworths put at $1.5 billion.
“Today’s write-down reflects tough and unprecedented trading conditions, a cyclical downturn and structural changes that have impacted performance across the Australian retail sector,” Woolworths said.
“This impairment has been exacerbated by delays and poor execution in certain of our key initiatives at David Jones.”
Woolworths’ board remained committed to the “transformation” of David Jones and would continue to invest in the business, the company said.
David Jones’ comparable sales fell 3.3 per cent in the six months to December 24, Woolworths said, but improved 0.6 per cent in the last six weeks of the half.
Comparable sales fell 0.7 per cent last financial year and the department store’s profit slumped about 30 per cent.
Management blamed some of that performance on the poor quality of its private label fashion lines, which it said would be improved by moving management of those products from South Africa to its Country Road Group team in Australia.
The revaluation comes amid challenging conditions in the retail sector which have hit department stores especially hard, with David Jones’ biggest rival Myer reporting a disastrous 5 per cent drop in sales for the first two weeks of December.
Myer has warned investors to expect its first-half profit to be “materially below” last year’s $63 million.
There have been a string of collapses in the sector in the past 18 months, with Oroton, Marcs, David Lawrence, Herringbone, Rhodes & Beckett, Payless Shoes and kids fashion brand Pumpkin Patch all going under.
David Jones has said it is adapting to the tough environment by investing in new merchandising and customer relationship systems, renovating its flagship store on Sydney’s Elizabeth Street and growing its upmarket food offering.
It has also moved its head office from Sydney to Melbourne in a move it expects to save $10 million a year.