Wesfarmers lifts profit despite Coles, Bunnings UK slumps

Entrada - colesWesfarmers has reported a 27.6 per cent rise to $2.87 billion in full-year profit, despite comparable food and liquor sales growth at its Coles supermarkets slowing to just one per cent.

Coles’ earnings decreased 13.5 per cent to $1.61 billion and comparable sales growth fell from 4.1 per cent in 2016 amid fierce competition with local rival Woolworths and German chain Aldi.

The supermarket chain’s food and liquor categories recorded sales growth of 2.0 per cent, with comparable sales growth of 1.0 per cent.

“In a very competitive environment, Coles invested in value, service, and better quality and availability in fresh, to deliver continued growth in sales,” outgoing Wesfarmer’s MD, Richard Goyder said. “Coles continued to execute its customer-led strategy, which it expects will provide a platform for sustainable growth in earnings and return on capital over the long term.

In recent months, Coles has cut the price of bread by as much as 35 per cent as it ramps up its investment in lowering prices.

It spent about $64 million on lowering prices during the first half, while rival Woolworths has spent more than $1 billion in 12 months on reducing prices.

Bunnings and Officeworks both reported improved earnings, while Target trimmed its pre-tax loss from $195 million to $10 million as Wesfarmers continues to overhaul the department store chain to exit unprofitable categories and improve merchandising.

Earnings for the Home Improvement division increased 2.6 per cent to $1,245 million, with growth in BANZ partially offset by the performance of Homebase in the United Kingdom and Ireland. BANZ delivered earnings growth of 10.0 per cent to $1,334 million, on revenue growth of 8.9 per cent. The earnings result included one-off store closure provisions recognised in the first half, relating to Wesfarmers’ agreement with Home Consortium for new Bunnings stores, and a high level of non-cash writedowns in the second half relating to future network changes and in-store display assets.

Bunnings United Kingdom and Ireland (BUKI) reported a loss before interest and tax of £54 million ($89 million) and revenue of £1,229 million ($2,072 million) in the first full financial year since Wesfarmers acquisition of Homebase. “While significant transition, separation and integration activity was undertaken throughout the year to progress the acquisition agenda, the volume and pace of repositioning Homebase affected store execution and consequently trading performance,” said Goyder.

“The first four Bunnings pilot stores were opened during the year, and early indications are that the format is resonating well with customers.”

Wesfarmers’ department stores divisions saw earnings increase 97.5 per cent to $543 million, driven by continued strong growth in Kmart and improved performance in Target.

Kmart’s earnings increased 17.7 per cent to $553 million on revenue growth of 7.5 per cent.

Target reported a loss before interest and tax of $10 million compared to a loss of $195 million in the prior year, with revenue declining 14.6 per cent. Excluding $145 million of restructuring costs in the prior year, and $13 million of costs associated with the planned relocation of Target’s store support office in the current year, underlying earnings were $3 million, $53 million above the prior year.

“Good cost control and improved inventory management delivered an increase in earnings and strong cash flow results for the year,” said Goyder. “While decisive steps were taken during the year to transition the business to everyday low prices, exit unprofitable categories, and improve merchandising and sourcing, there remains considerable work to complete the transformation of the business.”

Officeworks’ earnings of $144 million were 7.5 per cent higher than the prior year, with revenue growth of 6.1 per cent. Total revenue increased 6.1 per cent to $1.96 billion.

“Growth in online has continued, and this year we made a record two million deliveries to our customers across the country,” said Mark Ward, managing director, Officeworks.

Looking ahead, Wesfarmers said it was optimistic and expected continued growth in earnings, to be driven by ongoing improvements in merchandising and service, supported by operational efficiencies. The conglomerate also said it continues to review the Resources business, with “no certainty that this review will result in a transaction”.

More to come…

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