Slowing Kmart sales to weigh on Wesfarmers

In a post-Christmas trading update on Monday, Wesfarmers revealed that Kmart’s total sales (excluding Kmart Tyre and Auto Services) rose just 1 per cent sales in the first half of FY19, and comparable sales dropped 0.6 per cent.

The performance was atypical for the department store, which has recorded five years of gains under the leadership of turnaround guru Guy Russo, though Wesfarmers boss Rob Scott alluded to problems at the company’s annual general meeting in November.

In a statement to the ASX, Wesfarmers said sales were impacted by its exit from the low-margin DVD category, as well as weak demand in apparel categories, particularly womenswear, and moderate growth in everyday products compared to the previous year.

Citi research recently posited that Kmart’s 19-quarter run of like-for-like sales growth had likely come to an end, with Target and Big W to deliver positive sales in the low single digits.

Despite this, Wesfarmers is expecting to post earnings before interest and tax of between $385 million and $400 million at its half year results, to be revealed on February 21, not including the $265 million to $275 million gain on the disposal of Kmart Tyre and Auto finalised earlier in the year.

The conglomerate’s other department store business, Target, saw total sales increase by 0.2 per cent and comparable sales increase by 0.5 per cent – an improvement on the prior corresponding period.

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