When the new team moved into Myer last year, they inherited a broken company that was performing well below world’s best practice for department stores, and a long way short of its potential. Sales were stagnant and the business was fat and inefficient.

While David Jones CEO Mark McInnes always seems eager to compare his company with their lager department store competitor, Myer sees itself on a bigger stage.

In FY06, Myer reported an EBIT to sales ratio of 2.3%, compared with David Jones 6.6%, Target 7.8% and Harvey Norman (best of the big Aussies) at 8.7%. None of these compare well with the offshore examples of Marks & Spencer (10.9%) Kohl’s (11.7%) or Debenhams, the star at 13.9%. The clear agenda at Myer is to be in the company of the last three.

Yesterday’s results announcement by Myer indicates movement in the right direction. Myer sales are up 5% on a like store basis, and full year sales guidance is healthy. Most impressive is the 147% growth in EBIT, a product of getting the financial basics right. EBIT is now 5.4% of sales.

The work in the first 16 months has set the stage for more capex, increased sales, new stores and continuing improvements in supply chain, IT and customer loyalty programs.

We also glimpsed the underlying cultural shift at Myer. The presentation included a frank acknowledgment that Myer still has a long way to go, and that their EBIT fell short of what David Jones is achieving. Things are slowly turning. Previous Myer leaders exhibited far more hubris in relation to their smaller rival.

Doomsdayers have been keen to presage a Myer disaster to Crikey in recent months. I suspect some are unhappy former suppliers. They appear to be wide of the mark.

This morning David Jones produced a set of strong numbers, exceeding the expectations of some analysts. Like store sales are up 8.3% to just short of $2bn and net profit rose 157% to $208m.

The outstanding performances of David Jones in recent years has been a product of excellent execution, reduced competition from a distracted Myer and a real estate and stock market environment that benefited the DJs affluent customer base. Margins growth has come largely from lower operating costs. These circumstances will not all continue, so David Jones is about to find itself in a tougher market.

Yesterday, Craig Woolford of Citigroup downgraded their recommendation on DJS to sell, believing the shares to be at a substantial premium. Myer still has much to do while David Jones appears to have taken most of the opportunities. David Jones is developing their FY09-FY12 strategy. It is expected to contain plans for expanded financial services, new store openings and better brand management.

Good results from both retailers and clear signs that the battle is on.

Rob Lake publishes Brandish – a newsletter about retail intelligence.