DAVID Jones shares yesterday suffered their biggest one-day drop this year, despite the retailer unveiling a better fourth-quarter sales result. The shares were hammered more than 8 per cent to $4.81. The biggest fall since November last year and the department store chain booked a 6.9 per cent dive in full-year like-for-like sales. However, after falling almost 11 per cent in the third quarter, comparable sales rebounded in the fourth, to be down just 1.2 per cent on the back of stronger trading. David Jones chief Mark McInnes refused to say the worst was over for department stores, warning the economy was still open to "an external shock". "It's not about being less confident, it's more about recognising that the jury's out ... as to the recovery and the pace of recovery of the economy," he said. Mr McInnes said the fourth quarter sales of $512.3 million were much better than expected "and after the previous three quarters, which were terrible, it was a great relief". Credit Suisse retail analyst Grant Saligari said the result was "fairly well in line" with market expectations. He attributed the slide in the share price to a strong run over the past month. "I think you're just seeing a little bit of profit-taking off the back of that," Mr Saligari said. He said the strong cyclical rally in the market over several months was reflected in the share prices of retailers such as David Jones and JB Hi-Fi, while "some of the more staple stocks such as Woolworths, which have lower risk profiles, are coming back to the field a little bit". Austock Securities analyst Thomas Hodson compared David Jones' recent share performance to Harvey Norman's, "where there was a strong run up in the share price hoping that the good news and strong momentum would continue". "The DJs sales results weren’t a disaster, but there probably wasn't enough in terms of upside surprise or new news to really keep the momentum going," Mr Hodson said. Other retail stocks also took a hit yesterday, with Harvey Norman down 4.28 per cent to $3.13 and JB Hi-Fi off 3.82 per cent to $16.11. DJ's shares have doubled since March, and surged 10.17 per cent on June 30 after Mr McInnes upgraded the store's full-year profit guidance to between 8 and 12 per cent growth. Mr McInnes yesterday reaffirmed this year's profit guidance and said the company's next financial year, in which it expects to deliver flat to 5 per cent profit growth, would be one of "stability" before a return to retail growth. "We're not predicting any sales growth in FY10 -- we don't see that coming until FY11 and FY12," he said. The retailer outlined a new focus on online marketing, with former marketing general manager Georgia Chewing appointed to the new role of head of digital marketing and e-tail business. Mr McInnes said that over the next year David Jones would focus on improving its communications networks online. "Twitter is only like 12 months old and Facebook three years old, and those are completely changing the way people are communicating, and so we want to make sure our brand has a presence in those new technology distribution markets," he said. "And if there's an opportunity for e-tail expansion and we can get a return on investment then we'll take it. "DJ's latest full-year sales totaled $1.986 billion. Cosmetics continued to be the store's best performer, achieving double-digit growth during the fourth quarter. Young men's and women's fashion, children's wear, Manchester, kitchenware, home office electronics and small appliances were among other strong performers. However, trading in big items such as televisions remained tough. Like Myer Chief Bernie Brookes a day earlier, Mr McInnes was bemused at this week's retail trade figures which showed department stores' sales fell 8.8 per cent in June compared with May. "Our sales both at a total level and a like-for-like level in June were up on last year, so it has to be the discount department stores that have had a difficult month -- but it certainly wasn't us," Mr McInnes said. He did not believe the flagged re-listing of Myer influenced yesterday's DJ share price plunge. Herald Sun, August 06, 2009, http://www.heraldsun.com.au/businessold/dj-sales-pick-up-but-shares-dive/story-e6frfh4f-1225758488431

a. Using relevant theory or theories from ACC30008, explain why David Jones’ shares have dropped in value when fourth-quarter profits have increased?

b. One analyst suggests that there wasn’t enough ‘upside surprise or news to really keep the (share price) momentum going’. What does this comment suggest to you about market efficiency?

Answer rating: 100% (QA)

A Part of the fall could have been induced by a general share market fall whilst the information about specific project nonperformance would reduce fu... View the full answer