South Africa retailer Woolworths expects to boost earnings of recently acquired Australian retailer David Jones by upping sales of in-house clothing brands, cutting supply chain costs; savings from 22.4B-rand takeover to be at least 1.4B rand/year by 2019

, May 16, 2014 () – Woolworths Holdings Ltd. of South Africa plans to boost profit at newly acquired Australian retailer David Jones Ltd. by increasing sales of in-house clothing brands and cutting supply-chain costs.

Savings from the 22.4 billion-rand ($2.2 billion) takeover will be at least 1.4 billion rand a year by 2019, excluding interest and taxes, the Cape Town-based company said in a statement today. Woolworths plans to sell its own brands in the David Jones stores, which will help cut sourcing costs, while introducing greater loyalty benefits and increasing focus on online sales.

“David Jones has too many brands that don’t make sense and as Woolworths reduces these and adds their own brands they will be able to reach these synergies,’ BPI Capital Africa analyst Luis Colaco said by phone from Cape Town. ‘‘With quite small changes, Woolworths will be able to grow private-label sales at David Jones from 3.5 percent to about 20 percent.”

Woolworths shares fell 0.6 percent to 76.10 rand as of 1:16 p.m. in Johannesburg, paring the year’s gain to 1.9 percent.

The purchase of David Jones will help Woolworths compete with Northern-hemisphere chains including Inditex SA’s Zara, Fast Retailing Co. Ltd.-owned Uniqlo and Arcadia Group Plc’s Topshop, which have been expanding into South Africa, Australia and other new markets.

The deal will be funded by 10 million rand in cash and the rest in debt, including a 3.98 billion-rand Australian bridge loan and a 9.37 billion-rand equity-bridge facility, Woolworths said today. The loans are underwritten by Citibank Inc., JPMorgan Chase & Co. and Standard Bank Group Ltd. Woolworths will refinance existing David Jones debt of 995 million rand.

South Africa’s Reserve Bank and Australia’s Foreign Investment Review Board have approved the deal, which was announced April 9.



To contact the reporter on this story: Janice Kew in Johannesburg at jkew4@bloomberg.net To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net John Bowker, David Risser

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