Wesfarmers has downgraded its earnings forecast for Target as the troubled department store continues to drag down the conglomerate’s otherwise strong performance. Wesfarmers, which owns Target as well as grocery giant Coles and hardware chain Bunnings, says it now expects earnings before interest and tax (EBIT) for the 2013 financial year at between $140 million and $160 million. This compares to EBIT of $244 million in 2011/12 and analysts’ expectations for this year’s full y
year earnings of around $230 million.
Wesfarmers expects its bottom line to be hit by weak sales in the second half of the year that have been exacerbated by a warmer than average autumn.
Excess inventory had also forced the retailer to hold more sales for longer periods and recent restructuring of the business had also taken a bite into earnings.
Wilson HTM Investment Group adviser Peter Esho said while external factors had played a part in Target’s disappointing sales, the business had been deteriorating for some time.
“There’s no doubt that the weather and other factors like clearance prices have impacted operations, but Target’s woes have been a long time coming and unfortunately there doesn’t seem to be light at the end of the tunnel,” he said.
Esho said Target’s disappointing performance was dragging down Wesfarmers’ otherwise well-managed conglomerate.
He said Target’s earnings in the first half of the year accounted for almost half of earnings gained in Wesfarmers’ supermarket division.
“Wesfarmers will need to quickly address the issues in Target, they won’t simply solve themselves,” he said. Richard
Goyder, MD of Wesfarmers, said the company was taking action to improve Target’s earnings and maintain its brand in the Australian market.
At 1544 AEST Wesfarmers shares were down $1.27, or 2.87 per cent, at $42.93. AAP
