Retail conglomerate Wesfarmers reported growth in all aspects of its group operations in FY19, with Bunnings and Officeworks’ strong results offsetting those of the struggling Kmart Group.
Group net profit improved 13.5 per cent to $1.94 billion, though this increases to $5.5 billion when including discontinued operations such as Coles and Kmart Tyre and Auto Service.
Group revenue increased 4.3 per cent to $27.9 billion, while total online sales grew 33 per cent.
Wesfarmers Group chief executive Rob Scott told analysts the largest change seen group-wide in FY19 was a step-change into data and digital.
Bunnings Australia and New Zealand
Bunnings Australia and New Zealand delivered same-store sales growth of 3.9 per cent, and total sales growth of 5.2 per cent, earning a revenue of $13.16 billion.
According to Wesfarmers, this growth reflected the diversity of Bunnings’ customer base and the diversity of its product offering, despite further softening of the housing market. Category EBIT grew 8.1 per cent to $1.6 billion – contributing over half of the group’s EBIT.
The DIY retailer is well positioned for growth in FY20, Wesfarmers said, with a focus on furthering its online offer and use of data analytics while continuing category expansion, investment in price and store network growth.
Bunnings chief executive Mike Schneider recently told Inside Retail the retailer is planning to have its e-commerce offer online and fully operational across all of Australia by Christmas 2019.
“This follows the successful introduction of click-and-collect in Tasmania in April,” Schneider said.
“We’ve been really delighted with the progress and customers’ response to the offer.”
Schneider told analysts the business would continue investing in its online offering at a rate of approximately $20 million a year, and would expand its e-commerce offer to New Zealand in FY20.
Wesfarmers’ department store division Kmart Group lifted revenue 1.1 per cent to $8.59 billion, but EBIT fell 13.7 per cent to $540 million.
Apparel sales fell in the year, particularly in womenswear and non-seasonal products, though the business saw some growth in home and children’s merchandise.
Kmart Group managing director Ian Bailey said that while the group doesn’t report online penetration, both Kmart and Target are seeing online growth.
“We’re seeing the customer journey start online, and then the customer makes the choice of where to convert,” Bailey told analysts.
Target sales fell 1.5 per cent as a result of ongoing store closures, with comparable sales falling 0.8 per cent. According to Wesfarmers, the offer requires “ongoing repositioning.”
Despite this, the Kmart Group as a whole remains well positioned for the future, with Kmart set to continue enhancing its product range and expanding its digital capabilities, and Target accelerating plans for a repositioned and more focused offer.
Bailey noted that as Target closes stores, the group needs to find a way to retain customers who no longer have a local presence.
One way the group is experimenting to keep customer engagement up is by offering customers who purchase from Target’s online store to pick the goods up from a local Kmart store. The goods are delivered to Kmart, and are picked up as normal by the customer.
This approach would allow Target to offer a more focused product offering, with a smaller store count, but leverage the scale of its stablemate.
Rob Scott told analysts that the group’s acquisition of Catch Group opened up some interesting opportunities for new product lines, though the initial goal would be to leverage the marketplace across the Kmart Group.
“We’re excited about the new capability this brings, and look forward to accelerating this platform,” Scott told analysts.
New and expanded product lines delivered strong results at Officeworks, with revenue growing 8 per cent to $2.3 billion, and EBIT growing 7.1 per cent to $167 million.
An enhanced online offer and a focus on customer service also resulted in improved customer satisfaction levels.
The retailer expects to open a new distribution centre in Western Australia, though Wesfarmers noted earnings growth in FY20 is likely to be affected by lower prices on products, and higher wages for team members as part of a new workplace agreement.
Driving growth into FY20
“The retail divisions are well-positioned in their respective markets and will continue to invest in their offer to customers to deliver even greater value, quality and convenience,” Wesfarmers said.
“Bunnings, Kmart Group and Officeworks will remain steadfast in their focus on customers and on managing businesses for long-term success and value creation.”
Wesfarmers also noted it will take advantage of recently acquired investments, such as Catch Group and Geeks2U, in order to drive further growth into FY20. This is an updated version of a story that appeared on Inside Retail Australia.
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