Bunnings powering on for Wesfarmers despite cost jump

Bunnings has booked some of its strongest sales growth in decades, but also been forced to spend millions keeping its stores safe.

People queue outside Bunnings at Portsmith in Queensland. Picture: Brendan Radke

Bunnings has witnessed some of its strongest sales growth in decades in the first five months of calendar 2020 as home isolation pushed shoppers online and into stores for home repairs and DIY hardware jobs.

In a trading update to the market on Tuesday morning, Kmart owner Wesfarmers also reported improved trading for Kmart and its struggling Target division.

Wesfarmers said online marketplace Catch Group had also booked massive increase in its sales as online shopping becomes hugely popular during the health crisis.

Bunnings sales growth of 5.8 per cent in the first half of the financial year had accelerated to 19.2 per cent in the second half to date, increasing an overall 11.3 per cent for the financial year so far, Wesfarmers reported.

At Kmart sales were up 4.1 per cent in the second half to date and up 6.1 per cent for the financial year, while at struggling Target, sales improved from being down 4.3 per cent in the first half to be down 1.8 per cent in the second half, and 3.4 per cent lower overall for the financial year.

Gross transaction value at Catch Group, rocketed up 68.7 per cent in the second half to date, compared to a 21.4 per cent increase in the first half, and were up 43.7 per cent for the financial year, Wesfarmers reported. At Officeworks sales were up 11.5 per cent in the first half, up 27.8 per cent in the second half and for the financial year up 19.3 per cent.

“Significant demand growth has continued in Bunnings and Officeworks as customers continue to spend more time working, learning and relaxing at home,” Wesfarmers said in a statement.

“As a result, sales growth in the calendar year to date has increased significantly relative to the levels achieved in the first half of the financial year.

“Given the significant changes to the usual customer shopping patterns and expected future changes to government measures, it is uncertain whether the higher levels of sales growth will continue for the remainder of the calendar year.”

Wesfarmers said at Bunnings, the strong sales performance was supported by continued growth in consumer and commercial markets across all major regions and in all product categories.

But despite sales success there were costs involved in keeping stores clean during the health crisis, Wesfarmers said.

“While disciplined cost control remains a focus, Bunnings has invested approximately $20 million in additional cleaning, security and protective equipment to respond to COVID-19 over the last three months.

“In addition, Bunnings will incur costs of approximately $70 million in the 2020 financial year associated with trading restrictions in New Zealand, the permanent closure of seven small-format stores during the half, and the accelerated rollout of its online offering, including the write-off of legacy e-commerce platform assets.”

Sales momentum in Kmart and Target had improved in recent weeks, with a general increase in customer footfall in shopping centres and a recovery in customer demand for apparel, particularly winter clothing, Wesfarmers said.

“Despite this improvement, weekly sales performance remains highly variable as customer shopping patterns adjust and competitor clearance activity continues. In Kmart, significant growth in high-demand categories such as home and living ranges has resulted in some availability issues in recent weeks and is expected to impact sales in June.

“Additional operating costs associated with COVID-19, together with the temporary closure of New Zealand stores, will also impact Kmart Group’s earnings in the 2020 financial year. Pleasing progress continues in Catch, with strong growth in both in-stock and marketplace segments and ongoing growth in Club Catch subscriptions.”

In Officeworks, strong sales growth is supported by continued demand for technology, home office furniture and learning and education products, the company said.

“As announced at the half-year results, earnings growth in the second half is expected to be moderated by changes in sales mix and continued investment in price, team, technology and COVID-19 related operating costs.

“In the calendar year to date, the group’s retail businesses delivered total online sales growth of 89 per cent, reflecting the significant investment across the group in respective e-commerce capabilities in recent years as well as greater customer preference for shopping online during COVID-19. On a financial year to date basis, total online sales across the Group increased 60 per cent to $1.4 billion or $1.9 billion including Catch.”