Kirkcaldie shares soar 21% on David Jones takeover, capital return

LATEST: Wellington grande fame Kirkcaldie & Stains to disappear

Kirkcaldie and Stains [NZX: KRK], the unprofitable department store owner, will disappear after 152 years of operation, with Australia's David Jones using the site for its first New Zealand store and leaving the board free to return cash to shareholders. The stock soared on the news.

South African-owned David Jones will pay $A500,000 for the Kirkcaldie name and take over the lease of the Lambton Quay, Wellington site, with the option to buy the retailer's assets for $500,000, Kirkcaldie said in a statement. The shares jumped 21% to $2.04 after a brief trading halt for the announcement.

After the sale of its iconic inner-city building, Harbour City Centre, and paying off $23.5 million in bank debt, the retailer has $18 million in cash and equivalents, with a final $4.75 million instalment due in October.

Today's transaction now allows for an "early and substantial" distribution to shareholders from available cash, which is expected to exceed the recent market value of the shares, the company said, without being more specific. Kirkcaldie's board has been weighing options to return the business to profitability, telling shareholders at the annual meeting in February it was considering a retail turnaround, which would take three to five years and considerable investment, or downsizing or divesting the business.

"Although we received substantial funds from the sale of the Harbour City Centre, the board did not see how investing those proceeds in the retail business could be justified when we are faced with the much greater competing pressures from multi-store operators," said Falcon Clouston, chairman of Kirkcaldie. "At the same time, simply narrowing our retail offering had no assurance of success when there were many other specialist retailers seeking the same retail dollar."

Like many retailers, Kirkcaldie has come under pressure as bricks-and-mortar stores are forced to discount stock to compete with online rivals. Department stores in particular have come under pressure, including David Jones, which was taken over by South Africa's Woolworths Holdings and delisted from the ASX last year after sales and profitability fell.

"We have worked hard to minimise the impact of closure on our staff. The intent of David Jones to offer employment to the majority of our staff is positive," Clouston said. "But notwithstanding this, we anticipate the employment contracts of all our permanent and casual staff will come to an end in the gradual wind-down of the business."

The transaction requires shareholder approval at a meeting expected at the end of June and needs Overseas Investment Office approval. The department store will trade under its existing name until late January 2016. The David Jones rebranded store would open mid-2016.

(BusinessDesk)