David Jones Ltd says it is bracing for a drop in sales that will be worse than the 1990s recession but says the worst will occur in the first half of next year.
David Jones on Wednesday reported a 6.3 per cent fall in first quarter sales for fiscal 2009.
The department store giant affirmed its forecast for five to 10 per cent profit growth for this financial year even though like-for-like sales in the next three quarters of its fiscal 2009 are expected to fall by 7.5 per cent.
"The real pain is going to kick in next half and we're preparing ourselves for it," chief executive Mark McInnes said.
"At the moment our minus 7.5 per cent growth this half is off the base of about eight per cent plus the previous year.
"But our minus 7.5 next half is off about plus one (the previous year)."
Mr McInnes told journalists that if economic conditions deteriorated further and sales fell more than 7.5 per cent, the retailer would have would have to review its guidance.
Mr McInnes said the trading budgets for fiscal 2009 were worse than what the department store sector experienced in 1990/91.
During that period the market experienced four negative quarters of sales growth, ranging from minus three per cent to minus six per cent per quarter.
Credit Suisse research analyst Grant Saligari said the retailer's guidance reflected the weak consumer spending environment.
"I think they're being realistic, I'm not sure if any retailer is necessarily immune given extensive declines in wealth and the declines in sentiment that we've had," Mr Saligari said.
"It would be quite a herculean task effort to deliver the numbers on the profit line that they've forecast, with sort of sales performance that's being experienced at the moment."
"If they can do that - all credit to the team."
David Jones reported that total sales for the three months ended October 25 fell to $442.3 million, from $471.9 million in previous corresponding period.
On a like-for-like basis, first quarter sales were down 6.1 per cent.
Mr McInnes said sales had been volatile since the end of the company's first quarter.
He said that while there had been good sales in August and September, the company suffered in mid-October amid huge falls in share markets worldwide and government intervention in the financial system.
"We have seen a material drop off since that time and we've seen no recovery from that," Mr McInnes said.
"Year on year, the stock market is down 50 per cent, and consumer confidence is completely shocked, so that's obviously having an effect on the more discretionary ends of our business, things like beds and fridges and TVs.
"But our core womenswear and cosmetics business is still pretty good."
David Jones maintained that its business was solid, despite the gloomy economic outlook, and was well prepared to weather difficult conditions.
Mr McInnes said the retailer was managing its inventory, its cost efficiency programs were on track to deliver savings.
"We are well prepared to continue the David Jones tradition as the leading gift-giving destination for the important Christmas trading period and for the subsequent clearance period in second quarter 2009," Mr McInnes said.
"Although fiscal 2009 will be a very challenging sales year, we believe our business model is fundamentally sound."
David Jones shares closed five cents lower at $2.45.