Wesfarmers full-year profit down 58 per cent

THE failed Bunnings UK business and struggling Target chain have taken a huge chunk out of Wesfarmers’ bottom line.

WESFARMERS’ full-year profit has plunged 58 per cent to $1.2 billion off the back of the failed Bunnings UK and Ireland foray and the struggling Target department store chain.

The retail giant reported impairments of $1.4 billion related to Bunnings, a $300 million writedown in Target, and a $123 million gain from the disposal of its Curragh mine. Excluding significant items, net profit from continuing operations rose 5.2 per cent to $2.9 billion.

“The three key priorities for the year were to address areas of underperformance, reposition the portfolio and drive opportunities for growth, with good progress made against each of these,” Wesfarmers managing director Rob Scott said in a statement.

“The proposed demerger of Coles, and the divestments of Curragh and BUKI during the year, demonstrate a disciplined approach to capital allocation and portfolio management, and will reposition Wesfarmers for the next decade.”

Wesfarmers declared a fully franked final dividend of $1.20 per share, bringing the full-year dividend to $2.23, in line with the previous year.

Coles’ profit fell 6.8 per cent to $1.5 billion, Bunnings’ profit increased 12.7 per cent to $1.5 billion, Officeworks’ profit was up 8.3 per cent to $156 million, and the department stores business was up 21.5 per cent to $660 million.

Wesfarmers said department store sales were up 3.6 per cent with continued “strong growth in Kmart partially offset by lower revenue from Target”. The $306 million pre-tax writedown for Target reflected “difficult trading conditions and a moderated outlook for the business”.

“Target made good progress during the year, delivering positive earnings and strong cash generation through disciplined inventory management,” Mr Scott said.

“While the ongoing reset of merchandise ranges was reflected in lower sales for the year, the online, menswear and homewares categories delivered sales growth, with overall sales momentum increasing through the second half of the year.”

Meanwhile, Guy Russo will retire as chief executive of the department stores division and managing director of Target. Kmart managing director Ian Bailey will take over his role, while department stores chief financial officer Marina Joanou will head up Target.

Food and liquor sales at Coles grew 2.1 per cent, with crucial same-store sales up 1.8 per cent in the fourth quarter and 1.1 per cent for the full year. Analysts forecast Woolworths’ full-year like-for-like sales to grow by 4.2 per cent when it reports its results next week.

“Sales momentum in supermarkets steadily improved during the year, driven by growth in customer transactions, units sold and average basket size,” Mr Scott said.

“Continued improvements in the customer offer delivered earnings growth of 3 per cent in the second half of the financial year, although full-year earnings were below the prior year due to the annualisation of customer investments and the impact of one-off items in the first half.

“The Coles Liquor transformation was progressed with the business achieving its third consecutive year of positive sales growth. Revenue and earnings for the convenience business were lower than the prior year due to lower fuel volumes while store sales continued to grow.”

Wesfarmers is currently in the process of spinning off Coles into a separate listed entity, with the demerger expected to be completed by November. Under the arrangement, Wesfarmers will retain 15 per cent of Coles but hold on to 50 per cent of the lucrative FlyBuys scheme.

The company said “significant progress” had been made on the plan, with Coles expected to have “substantial headroom” to allow new store investments, the “next evolution” of store renewals and improved online capability.

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