Wesfarmers’ full-year profit will be hit by writedowns and restructuring costs of about $2 billion related to its Target department stores and Queensland coal mine.
Wesfarmers, which also owns supermarket giant Coles, says it will take a post-tax impairment of between $1.083 billion and $1.283 billion on Target.
The conglomerate will also record a $420 million-$600 million impairment against its Curragh mine in central Queensland.
With another $145 million of restructuring costs and provisions against Target, which this year was hit by an accounting scandal that cost managing director Stuart Machin his job, Wesfarmers’ profit could be all but wiped out.
The company posted a $2.4 billion net profit in 2015.
“We firmly believe in doing what’s right for the long-term future of our businesses, and we have never shied away from taking tough action in the short term if that is what is required,” Wesfarmers managing director Richard Goyder said. “The decisions which we have outlined today reflect more difficult market conditions in both Target and Curragh, but we remain confident that, operationally, we have the right plans to improve future performances.”
Goyder said while Target had made “operational progess” in recent years, market competition and disruption necessitated the creation of Wesfarmers’ new department stores division led by Guy Russo.
Wesfarmers’ final dividend will be unaffected by the non-cash impairments, but net profit will also reflect a $50 million loss in Target’s pre-tax earningsfrom stock clearance and lower margins even before the $145 restructuring costs.
Target’s restructuring costs include about 240 previously announced redundancies, a new headquarters, a re-ordering of its supply chain.
The business has been under pressure from rival Kmart, also owned by Wesfarmers.
“Since February, Target’s new management team and I have acted promptly to clearly understand both the short and longer term opportunities for performance improvement,” said Guy Russo, department stores chief executive, Wesfarmers.
“Through this process, I am very confident that, over time, there can be a great future for both Target and Kmart as parallel but differentiated brands in the market place.”
As part of the restructuring activities, Target’s supply chain will be ‘streamlined’ with provisions to exit surplus offsite facilities expected to cost $35 million.
Resetting Target’s inventory, including clearance costs and provisions associated with the exit of slow moving categories and deleted product across the network is expected to cost approximately $80 million.
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