Another write-down in the value of Woolworths’ grand dame Australian department chain, David Jones, by A$437.4-million (R4.3-billion) – in just over a year – has sparked investor fury over the “irresponsible” use of shareholder funds over the past five years.

Investors are so vexed that they’ve implored Woolworths to sell David Jones and for the retailer’s CEO Ian Moir to be fired because he aggressively pushed the retailer into Australia in 2014 to create “a leading southern hemisphere retailer”.

David Jones was supposed to be transformative as it would propel Woolworths to become one of the top 10 department store chains in the world. However, it has become a nightmare for shareholders, who have been told to be patient for a David Jones turnaround story by Moir, a straight-talking Scotsman, for many years.

Some investors were shocked on Thursday 1 August after Woolworths announced it had reduced the value of David Jones by a further A$437.4-million (R4.3-billion), bringing the write-offs to more than R11-billion for an Australian business it shelled out R21.5-billion to acquire. In January 2018, it reduced the value of David Jones by R7-billion.

This means that Woolworths overpaid for its bold leap Down Under and has lost nearly half the value of its initial David Jones investment.

In a trading statement ahead of its annual results expected later in August, Woolworths said on top of the David Jones write-down, it would take an A$22.4-million (R223.1-million) charge for “onerous leases” at the Australian retailer.

“I think the market is already discounting a zero valuation on David Jones. So, any sale [of the business] would be very well received,” said Cassie Treurnicht, portfolio manager at Gryphon Asset Management.

FNB Wealth and Investments’ Wayne McCurrie agreed with Treurnicht, saying that Woolworths should give up on David Jones and “virtually give it away” because shareholder value has been eroded.

Shareholder value destroyed

When Woolworths completed the David Jones acquisition in 2014, its share price was trading above R105 and the investment community rendered it as a retail darling. About R53-billion has been wiped off its market capitalisation in five years as Woolworths finished at R55.22 on Thursday August 1. Woolworths, a JSE top 40 stock, has featured in the worst performers list since 2016.

Woolworths has blamed several reasons for David Jones not living up to expectations: poor fashion choices on ladieswear, a late start to winter and consumers ditching department store shopping for online shopping. This time, Woolworths has blamed “unprecedented” economic pressures for the latest David Jones write-down, with Australia’s retail sales and the economy being sluggish for several years.

This is not a good excuse, said one Woolworths shareholder, adding that management should have adapted to the tough trading environment. “Moir should fall on his sword. For many years, he rejected suggestions by shareholders that management overpaid for David Jones.”

Woolworths faced leadership stability on the board with members resigning in recent months, included respected banking figures Gail Kelly and Patrick Allaway.

“I would not be surprised if there are differences in the way forward amongst board members,” said Treurnicht.

David Kneale, the former Clicks CEO who is credited for making the health and beauty defensive during tough economic times, joined the Woolworths board in March 2019. Treurnicht said Kneale has the skills to turn the Woolworths and David Jones ship around.

David Jones also had its fair share of boardroom drama, with its CEO David Thomas resigning with immediate effect in February 2019 – becoming the fourth CEO at David Jones to resign in five years.

David Jones too big

Some investors cheered Woolworths’ aggressive move into Australia, arguing that the retailer had limited growth opportunities in sub-Saharan Africa while others were nervous about the sheer scale of the acquisition. McCurrie was in the latter camp.

“For some reason, South Africans think that they can go overseas and buy a massive bet-the-farm business that is in trouble and has to be fixed. It could be that they are buying a fixer-upper because that’s all they can afford in rands or they truly believe they can fix it up when the locals haven’t been able to.

“South African companies might be competitive and think they are good in South Africa. But when you go overseas, it is competitive. You play with the big boys,” said McCurrie.

You don’t have to look far for South African offshore blockbuster deals that have become disasters. They include Brait’s bet on UK retailer New Look, Famous Brand’s Gourmet Burger Kitchen, and many others. BM