Wesfarmers profits up 13 per cent to $1.6 billion as Bunnings, Kmart and Officeworks shine

IT’S BEEN quietly transformed from an office supplies store into so much more, and now Officeworks could be up for sale.

WESFARMERS’ half-year profit has increased by 13.2 per cent to $1.58 billion, helped by a strong performance at Bunnings, Kmart and Officeworks.

But Coles’ earnings fell 2.6 per cent to $920 million as its sales growth slowed further amid heavy grocery discounting led by Woolworths.

Food and liquor comparable sales, which strips out one-off events, rose 1.3 per cent in the six months to December 31, much slower than the 4.3 per cent growth recorded in the same period a year ago.

Earnings from the home improvement business, which includes the Bunnings hardware chain, increased three per cent to $722 million.

In an unexpected move, Wesfarmers says it has started a strategic review of its Officeworks business and is evaluating options to monetise its value, including through an initial public offer.

“Since Wesfarmers acquired Officeworks in 2007, the business has successfully executed a turnaround plan, more than doubling its earnings and improving its return on capital from 5.7 per cent in the 2009 financial year to 13.9 per cent in the current period,” Managing Director Richard Goyder said in a statement to the ASX on Wednesday.

“Officeworks is well positioned for future growth with a strong competitive position and ongoing initiatives to grow its addressable market. In light of its performance, options to monetise the value created for shareholders, including via an initial public offering, are being evaluated.”

The office supplies company posted first-half earnings of $62 million, up 5 per cent, with revenue growth of 6 per cent reflecting improvements in merchandise layouts, price cuts and new product ranges such as art supplies, learning products, puzzles and games.

SUPERMARKET CHALLENGES

Earnings before interest and tax at Coles decreased 2.6 per cent to $920 million for the first half of fiscal 2017, with revenue in line with the previous corresponding period. Food and liquor recorded sales growth of 2.2 per cent.

“The decline in earnings was driven by lower margins following increased investments in value, which were weighted towards the second quarter, including through the absorption of cost price increases in meat,” said Mr Goyder, who will step down as managing director at the end of this year.

“Coles’ steadfast commitment to its customer-led strategy delivered continued growth in comparable transactions, basket size and sales per square metre during the half, with record results achieved on key customer feedback measures over the Christmas trading period.”

A revamp of Coles Liquor was delivering positive comparable sales growth, he said.

BUNNINGS IS BOOMING

Home improvement chain Bunnings delivered earnings growth of 9.8 per cent to $770 million, with revenue growth of 8.3 per cent, and store-on-store sales growth of 6.5 per cent.

The results reflected the brand’s strong market position, Mr Goyder said, “which has been further supported through continued investment in customer value, stores and online.”

Earnings for the period included store closure provisions relating to the agreement with Home Consortium for new Bunnings sites.

Meanwhile in the United Kingdom, the newly launched Bunnings UK and Ireland chain reported a loss before interest and tax of £28 million ($48 million) and revenue of £612 million ($1,038 million) as the company invests in getting the business off the ground.

“Bunnings UK and Ireland has made very good progress to separate Homebase from its former owner and begin repositioning the business,” Mr Goyder said.

“Pleasingly, the first Bunnings pilot store was successfully opened on 2 February 2017, with additional pilot stores currently under development.”

A TALE OF TWO DEPARTMENT STORES

Target’s earnings fell by $58 million to $16 million, with revenue down 17.7 per cent as the department store chain battles to revive its fortunes.

“Target’s results reflect both a difficult trading period and impacts associated with significant transition work underway,” Mr Goyder said.

“Key strategic priorities have been progressed, including the conversion to everyday low prices and work to reset buying disciplines. Good progress has also been made to reduce costs and improve working capital management.”

Kmart, on the other hand, boosted its earnings by 16.3 per cent to $371 million on revenue growth of 8.9 per cent.

“Kmart produced another very strong result, with sales growth delivered in all categories, underpinned by growth in customer transactions and units sold,” Mr Goyder said.

“Continued investments in the store network, product enhancements, and sourcing and supply chain efficiencies also supported sales and earnings growth.”

— With AAP

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