Wesfarmers full-year profit drops 83.3 per cent on $2 billion writedown

STRONG profit results from Wesfarmers’ Coles and Bunnings stores have been overshadowed by hefty writedowns linked to Target and its coal assets

STRONG profit results from Wesfarmers’ Coles and Bunnings stores have been overshadowed by hefty writedowns linked to Target and its coal assets.

Wesfarmers’ profit in the year to June 30 plunged 83.3 per cent to $407 million compared to a year ago, due to $2.2 billion in pre-tax writedowns from its embattled discount department store Target and its Curragh coal mine. The Perth-based conglomerate’s underlying profit, excluding the writedowns, dropped 3.6 per cent to $2.35 billion.

Managing director Richard Goyder said Coles’ and Bunnings’ strong sales and earnings growth were offset by Target’s weak underlying performance and restructuring costs, and the impact of low commodity prices in the resources business.

“Excluding Target, the retail portfolio delivered growth in earnings before interest and tax of 7.5 per cent,” Mr Goyder said in a statement to the ASX on Wednesday.

Coles earnings rose 4.3 per cent to $1.86 billion with food and liquor sales increasing 5.1 per cent to $32.6 billion, and the crucial comparable sales growth lifted 4.1 per cent.

Mr Goyder said it was a strong result given food deflation driven by fierce competition from Woolworths and the rapidly expanding discount supermarket chain Aldi.

Earnings from the Bunnings hardware chain increased 11.6 per cent to $1.2 billion with revenue growth of 21.4 per cent.

Target’s revenue was flat and the unit recorded an operating loss of $195 million, including $145 million of restructuring costs and provisions to reset the business.

The group blamed aggressive seasonal clearance and the impact of a lower Australian dollar on margins for Target’s underlying loss of $50 million. Wesfarmers created a department stores division taking in Target and its successful stablemate Kmart in February.

Mr Goyder said good progress had been made in reducing inventory and rationalising ranges but further work was needed.

Kmart’s earnings grew 8.8 per cent to $470 million on revenue growth of 14 per cent.

Elsewhere in the business, Officeworks’ earnings rose 13.6 per cent to $134 million with revenue rising eight per cent.

TARGET WRITEDOWN WEIGHS ON WESFARMERS

* Net profit down 83.3pct to $407 million

* Revenue up 5.7pct to $66 billion

* Final dividend of 95 cents, down from $1.11