Financial Analysis REPORT DAVID JONEST v1.docx
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Financial Analysis REPORT DAVID JONEST v1.docx
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FinancialAnalysisREPORTDAVIDJONESTv1
FinancialStatementAnalysisReport
DAVIDJONESLIMITED
BY:
SUHI,BEN,LEON,BILLY&RITA
BusinessandStrategicAnalysis
BusinessEnvironment
DavidJonesLimited(DJS)isaleadingupmarketretailerwithstoresthroughoutAustraliaandoperates35departmentstoresand2warehouseoutlets.(Jones,2011)Thedepartmentstoresfocusonthepremiumendofthemarketintermsofthebrandsandproducts.(Jones,2011)DJShasalsobeenfocusingonincreasingthenumberoffashionlineswhicharenowonlyexclusivetoDJSthroughtheintroductionof90newbrands.(Jones,2011)
Refurbishmentsofstoreshaveoccurredduringthelast12monthsofthefinancialyearallaroundAustralia,inthehopeofincreasingEBITinFY2012insteadofopeningnewstores.(Jones,2011)FY2011wastheyearwhichsawthelaunchofDJSonlinesitewhichoffersover1500products.(Jones,2011)
MyerHoldingsLimited(MYR)isthemainrivalagainstDavidJones,targetingalargerangeofcustomerssimilartoDJS.(AspectHuntley,2012)Withover67storesinAustralia,MYRalsoretainsdesignerbrands–nationallyandinternationally–formen,womenandchildren.MYRfocusesonnotonlyitsretailpresenceandexecution,butalsomixeshouse-brandwithleasedspaceareas.(AspectHuntley,2012)
MacroeconomicEnvironment:
AccordingtoFigure1,thereisanincrementevidentintheConsumerPriceIndex(CPI)Australiafrom2008to2011.ThepercentagechangeofCPIpeakatMarch2011isevidentinFigure2.(Statistics,2012)Takingthesetwoincidencestoconsideration,thezerocouponinterestrateinFigure3isindicativethattheReserveBankofAustraliahastakenanaggressivemonetarypolicyapproachtocontrolpotentialinflation.(Australia,2012)Interestalwaysstaysatahighlevel4.75%pa.(Australia,2012)Intheotherwords,thecustomerdecreasestheirnormalexpense.Becauseofthehighinterestrate,thereisasignificanteffectforallindustries,especiallyforretailindustry.
Figure2
Figure1
Figure3
IndustryAnalysis
RivalryAmongExistingFirmswithintheretailindustry
Degreeofcompetitionintheretailindustryiscurrentlyveryhigh.DJShasbeendiscountingitsprices–butkeepingitsproductsdifferentiatedbymaintainingpremiumlevelpricing.Industrygrowthrategrewrapidly,butbecauseconsumerconfidence,ithassloweddownovertheFY2010-FY2011duetoarangeofmacroeconomicfactorsindicatedabove-thegrowthratehasstagnatedoverthisperiod.Theretailindustryisfragmented,butDJSisauniquedepartmentstorewithitsonlycompetitionbeingthenotableMYR.(AspectHuntley,2012)OtherrivalsmayalsoincludeHarveyNormanHoldingsLtdandJBHi-FiLtdwhosellentertainmentproducts.DJSandMYRdodominatethedepartmentstoresintheretailindustry,maintainingasignificantdegreeofmarketmonopolyifonelooksatsharesownedbythecompanyhere.Switchingcostsaremedium,ifaconsumerdecidedtoswitchfromDJStoMYRbecauseoftheirsimilarpremiumpricingstrategyanddifferentiatedproducts.Currentlythecapacityintheretailindustryislargerthancustomerdemand–becauseofthecurrentenvironment–whichhasledtoDJSdiscountingpricesofitsproductstofillcapacity.
ThreatofNewEntrants
Becausetherearelargeeconomiesofscaleintheretailindustry,becauseacompanyaslargeasDavidJoneshasaccesstoalargemarketallowingthemtooperatewithgreatergeographicalreach,willlimitthenumberofnewentrantsandanynewentrantswillinitiallysufferfromacostdisadvantageincompetingwithDavidJonesand/orMyer.Brandadvertisingisalsopredominantintheretailindustry–particularlyinthecaseforDavidJones–thuseconomiesofscalewillariseininvestmentsinbrandadvertisingaswell.
DJSistheleadingupmarketretailer,withstoresthroughoutAustraliaandalongsideMyer,bothoftheseretailcompaniesholdafirstmoveradvantageoverotherretaildepartmentalstoresbecauseoftheirlargepresencethroughoutAustralia,andalsobecausetheirproductsarewellbranded,premiumanddifferentiated.BecauseDavidJonesfocusesonpremiumbrandsandpricing,(Jones,2011)itisabletosetindustrystandards,enterintoexclusivearrangementswithsuppliersandhaveabsolutecostadvantageovernewentrants.DavidJonesalsohasaloyalcustomerbase,andtherewillbesignificantswitchingcostsforcustomersoncetheyareattractedtoupmarketretailstorelikeDavidJones,anditwouldbedifficultfornewretailstorestomarketnewproducts.
DavidJonesnewonlinepresencewillbeanotherobstaclefornewentrants.(Jones,2011)DavidJonesisrefurbishingandopeningnewstoresaroundAustraliatofurtherincreaseitsmarketpresence,andthiscanlimitthecapacityofnewentrantsindevelopingchannelsoftheirown.(Jones,2011)HavingastrongexistingrelationshipwithitscustomersalsoplacesDavidJonesatanadvantagecomparedtonewentrants,makingitdifficultfornewretailstorestoenterthisindustryespeciallywhenconsumerconfidencehasbeenatalowsincetheglobalfinancialcrisis.
ThreatofSubstituteProducts
Customershavebeenparticularlypricesensitivesincetheglobalfinancialcrisis,andtheretailindustryhasbeenhithardasaresultofthisdeclineinconsumersentimentandhighlevelsofpersonalsavings.DavidJoneskeepsitspriceshighforfavourablereasons,beinganupmarketcompany.Howeverithascontinuouslyincreaseddiscountsoverthisperiod(Jones,2011).
Thereisclearlythethreatofcostumerstoswitchtocheaperproducts.DavidJonespricepremiummeansitscustomersplaceavalueontheimageorstyleofferedbythebrandedupmarketproductsoffered.Howeveradropinsalesintheretailindustryasawholeindicatesconsumerconfidenceissolow,thethreatofsubstitutingpremiumproductsforcheaperisperhapsthebestoption.
AnotherthreatisonlineshoppinghoweverDavidJoneshasbegunanonlineshoppinginitiative.ButthisdeclineinconsumersentimentandstrongAustraliandollarindicatesthereisalikelychancecustomersmayshoponlinefromoverseasstores,becauseitisacheaperandeasieralternative.
BargainingPowerofBuyersandSuppliers
BuyersdonothaveabargainingpowerwithDavidJones,inthisretailindustry,becausetheproductsaredifferentiatedandpremiumpriced.Itisanupmarketcompany,withfixedprices,disablingcustomerstonegotiate.CustomersofDavidJoneslookforqualityandvalue,whichiswhatDavidJonesoffers.Theimportanceoftheproducttothebuyers’ownproductqualityreflectsthatpriceisnotthemostimportantdeterminantofthebuyingdecision.
Intheretailindustrytherearemanydesignersofclothesformen,womenandchildren.Therearealsomanysuppliersforentertainmentandwhitegoods.ThusDavidJonesispowerfulinchoosingwhotheirsuppliersare.RecentlyDavidJonesaddedmoreAustralianbrandstoitsclothingline.ThereisintensecompetitionamongstsupplierstogettheirproductsinlargedepartmentstoressuchasDavidJones,especiallywhenDavidJoneshasanupmarketcustomerbasewhichleadstohighersalesmargin.
CompetitiveandCorporateStrategy
DavidJones’competitivestrategyistargetingtheircustomersthroughdifferentiation.ThemajorityofDavidJones’customersare30-50yearsoldwomen.ThereforeDavidJoneshasbuiltcompetitiveadvantageonthestrategicfactorsrelevanttotheircustomers.Theseinclude:
image,throughitsin-storeproductbrandsandadvertising;customerservice,whichitmonitorsvigorouslyviaamystery-shopperprogram;storepresentation,byhavingclearlinesofsight,bynotbeingoverstockedandbygeneralambience;andproductrange—manyofthebrandedproductsareexclusivetoDavidJones.AllofthesecombinationsofstrategicfactorsshowthatDavidJonestobecompetitiveonprice,butitdoesnotaimtobeadiscounterviacostleadership.DJS’corporatestrategyistomanagecostsandinventorywithoutimpactingtheircustomerserviceprinciplesandinventoryinkeyareasthatwilldelivergrowthandpositionthecompanywellinachangingretailenvironment.(Jones,2011)
SWOTAnalysis
DavidJoneshasastrongmarketposition,apowerfulbrandname,aloyalcustomerbaseandissuccessfullydifferentiatingitselffromitscompetitorsintermsofexclusivesupplyarrangement,qualityofservice,storeambienceandproductrange.(Jones,2011)DJSisprofitableandhasawell-positionedstoreportfoliowithmarginsconsistentwithleadinginternationalpeersandwithdirectownershipofdepartmentstorecard/creditcardbusiness-includingdirectownershipofflagshipSydneyandMelbourneCBDstores.Strongbalancewithlowdebtlevels,solidcashflows,andahighdividendpayoutratio(above85%).(Jones,2011)WedonotbelieveDJShasanyclearweaknessesatthisstage,howeveranaccountingandfinancialanalysismayrevealunderlyingoperational,investingorfinancingweaknesses.
Intermsofopportunitiestoaddresswiththesethreats,DJScomesupwithsomestrategies:
a)Transformingthecompany,b)Growingthestorenetwork,andc)Strengtheningthecorebusiness.(Jones,2011)Someviablethreatshoweverincludethestructuralchallenges,onlineretailcompetition,theconstantglobalizationofretailingthemacro-economicheadwinds,thefactthatwearelivingintheworstretailsalesgrowthenvironmentinover20years.Theincreasinglabor,rent,utilitiesandfinancingcosts,challengingAustralianconsumercreditmarkets,DavidJones’cardportfolioisexposedtoprevailingweakdiscretionaryretailspendingenvironmentandchallengingAustralianconsumercreditmarkets.
AccountingAnalysis
DJS’sfinancialstatementisin
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