South Africa - Pretoria - 17 May 2019 - Woolworths plastic bags. Picture: Bongani Shilubane/African News Agency(ANA). The JSE-listed retailer said David Jones had impaired A$437.4 million in the year to June resulting in the valuation falling to A$965m.

JOHANNESBURG – The Spotlight is now on the management of Woolworths after the retailer wrote down the value of its troubled Australian David Jones department store for the second time since last year, despite assurances this year that it would not occur.

Woolies, the JSE-listed fashion and beauty retailer, said David Jones had impaired A$437.4 million (R4.35 billion) in the year to June resulting in the valuation falling to A$965m.

Woolies said on Thursday that a strategic review of the David Jones portfolio had also identified stores with onerous leases resulting in an additional provision of A$22.4m at period end.

“The impairment reflects the economic headwinds and the accelerating structural changes affecting the Australian retail sector as well as the performance of the business, which has fallen short of expectations. The WHL board believes that the valuation of David Jones is realistic and reflective of its prospects,” the group said. Woolies said as a result of the impairment, headline earnings a share would take a hit in the year ended June.

David Jones has underperformed due to the weak economic sentiment in a tough Australian market that has been worsened by online players such as Amazon. 

Damon Buss, an investment analyst at Cape Town-based Electus fund managers, said yesterday the recent impairment was the second since in 2018 and while it wasn't a surprise, it reflected poorly on the Woolworths’ management and board, which had stated in the interim results in February that there was no need to further impair the David Jones business.

“Six months later we have to ask has David Jones performance deteriorated more or are Woolworths starting to accept that the department store model is in structural decline?” 

Last year, Woolies said a R6.9bn impairment of David Jones resulted in the group showing a  R3.5bn loss in 2018 financial year compared the prior year's R5.4bn profit.

Woolies bought David Jones for  R21.5 billion in 2014, making the buy its biggest acquisition through which it aimed to create one of the leading retailers in the southern hemisphere.

Buss said the impairment was a result of continued weak organic revenue growth and substantial cost increases due to the transformational initiatives being rolled out.

“Perpetual management changes and the resignation of the two Australian board members in February 2019 indicate there is a disagreement on the strategy between the David Jones management and Woolies executives. 

“Woolies need to get things right at David Jones, as in its state they would struggle to sell it at current book value,” said Buss.

Woolworths shares closed 0.40 percent higher at R55.22 on the JSE on Thursday.