Thursday, May 7, 2009

Sachs Speaks and Stocks Surge for David Jones

David Jones Surges After Goldman Upgrades to ‘Buy’

By Robert Fenner

May 7 (Bloomberg) -- David Jones Ltd., Australia’s second- biggest department store chain, surged the most in six months after Goldman Sachs JBWere Pty. raised its rating to “buy.”

David Jones shares rose 11 percent to A$3.64 at the 4:10 p.m. market close, their largest gain since Oct. 29. The stock has gained 14 percent this year.

Consumer spending is likely to improve in the second half of the year while management of the Sydney-based retailer have been able to protect earnings amid falling sales, Phillip Kimber, a Melbourne-based analyst at Goldman, said in a note to clients. He also cited “solid valuation support” and a dividend yield of about 8 percent as he raised his rating from “hold.”

“We recognize that there are risks to our outlook for an improvement in consumer spending,” Kimber said. “We believe that David Jones’ proven management team and business model mitigate some of this risk.”

David Jones yesterday announced a 9.2 percent fall in third- quarter sales, a result that beat Kimber’s estimates.

The retailer, anticipating lower sales amid a recession, cut inventory holdings and renegotiated trading terms with suppliers to limit the impact of falling demand for designer fashions.

Chief Executive Officer Mark McInnes affirmed his forecast for second-half profit growth of zero to 5 percent.

“This is a very impressive outcome,” Kimber said. The result “reflects David Jones’ successful management of the consumer spending cycle.”

To contact the reporter on this story: Robert Fenner in Melbourne

Last Updated: May 7, 2009 02:36 EDT

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