The Australian economy and retail sector will "remain tough in the short term", says the owner of the David Jones department store and clothing brand Country Road.
South African retail giant Woolworths Holdings – which paid $2.3 billion for David Jones and Country Road Group in August 2014 – also plans to introduce more "trans-seasonal clothing" to cope with unpredictable weather in the southern hemisphere.
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David Jones launches its summer fashion
David Jones summer fashion launch warms up a cold, wet day with models strutting the catwalk showcasing the latest swimwear.
Taking into account Country Road Group brands Trenery, Witchery and Mimco, Australia now accounts for 40 per cent of Woolworths' operating profit.
Posting weaker growth for David Jones and falling sales at Country Road Group, the retail giant said its results had been hit by "an extremely warm winter and consequent very high levels of promotion" in both Australia and South Africa.
"As summer arrives, we are seeing sales improve, albeit in challenging conditions in both markets."
The lower Australian dollar and problems with its range also hurt, Woolworths told investors on Friday.
A later-than-expected start to winter meant retailers needed to discount to get winter stock out the door.
Woolworths said Country Road would "introduce more trans-seasonal merchandise to account for changing weather patterns."
There will also be more private-label brands at David Jones, Woolworths said.
Woolworths isn't the only retailer to be niggled by unpredictable weather. "With the weather that we've had, I think it's been challenging for retailers," one retail veteran said recently. "It started with us not having a winter, and when winter came everyone was on sale. And now there hasn't been a spring yet.
'Soft' trading
For the 19 weeks to November 6, David Jones sales (including sales from concession stores inside its department stores) increased 2.2 per cent in Australian-dollar terms. Excluding new stores and the closing down sale of its Dick Smith concession stores, sales grew by 0.6 per cent.
Country Road Group sales fell by 2.8 per cent in Australian-dollar terms over the first quarter. Excluding new stores, sales fell by 4.9 per cent.
Year on year, David Jones income grew by 5.6 per cent in Australian-dollar terms, while Country Road Group income fell by 12.6 per cent in Australia-dollar terms.
Investment bank Morgan Stanley analyst Tom Kierath described the result as "soft trading for David Jones/Country Road".
Deutsche Bank said: "Industry feedback suggests that while there has been some improvement, conditions have remained tough .... we expect [department store rival] Myer will also report deterioration when it reports first quarter sales later this month."
Citi recently warned the recent decline in clothes prices won't last because cotton and wool prices are rising, and the lower Australian dollar is raising costs for local retailers.
But industry body Australian Retailers Association and researchers Roy Morgan are upbeat about prospects for retailers this festive season. They have tipped Australian shoppers will spend more than $48.1 billion in retail stores from November 15 to Christmas Eve, up 2.3 per cent on 2015 figures.
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