'Dramatic' sales drop for top Australian retailer (AFP)

SYDNEY (AFP) – Australian retail stocks plunged Thursday after top-end department store David Jones sharply downgraded profit forecasts following a "dramatic" fall in sales to increasingly grim consumers.

David Jones shares slumped 18.16 percent to Aus$3.20 after it warned that trading conditions "deteriorated significantly" in April-June, the final quarter of fiscal 2010, with key mid-year clearance sales failing to deliver.

Profit in the final six months of the year -- January-June -- would be about 20 percent lower than the same period in 2010, the retailer added.

Full-year profit would be between 0.5 percent and two percent lower than the year to June 2010, at around Aus$167.7 million-Aus$169.7 million (US$180.6 million-US$182.8 million), the company said.

"The dramatic and rapid deterioration in trading conditions in 4Q11 has been unprecedented," said David Jones CEO Paul Zahra.

"As a result we are taking a cautious approach to 1H12 and have planned and forecast trading conditions to continue to be challenging, with expected negative sales," he added.

The announcement, which follows extremely weak consumer sentiment data, sent jitters through the retail sector, with rival department store Myer losing 6.42 percent to $2.48 and electronics giant Harvey Norman down 4.56 percent to $2.30.

It also battered media stocks, with newspaper group Fairfax dropping 4.21 percent to a two-year low of 91 cents due to fears about lost advertising from David Jones, a major client.

Zahra noted the 8.3 percent plunge in consumer confidence this month to levels usually associated with a recession and last seen during the global financial crisis, with the drop most marked among higher income earners.

"That is actually the David Jones customer base," he said.

National incomes are surging and the Australian dollar is strong due to an Asia-driven mining boom, but growth is uneven and interest rates remain at a relatively high 4.75 percent.

Debt fears in Europe are also dampening confidence, along with cost of living worries associated with Canberra's new pollution tax on Australia's top 500 carbon emitters, despite promises of household compensation.