Wesfarmers posts strong Coles, Kmart growth, but Bunnings UK struggles

Wesfarmers’ Coles has posted its strongest same-store sales growth in nearly two years, as Bunnings UK felt a cold blast.

Coles has posted its 42nd consecutive quarter of comparative sales growth. Pic: Stuart McEvoy

Coles looks to have halted its recent string of spluttering quarterly sales to post its strongest same store sales growth in nearly two years, adjusting for the timing of Easter and New Year’s Day, which should help to stoke investor appetite for the demerger and float of the $20 billion supermarket chain.

In the UK, where the Perth-based conglomerate Wesfarmers is reviewing its loss-making hardware chain Bunnings, the winter storms that lashed Britain in March — caused by a cold weather system from Scandinavia and Russia called the “beast from the east” — ruined the quarter’s trading as shoppers turned away from gardening and outdoor living products.

Total sales across Wesfarmers’ retail portfolio rose 2.7 per cent to to $14.85 billion, driven by Coles, Bunnings in Australia, Kmart and Officeworks while continued operational troubles at Target and Bunnings in the UK were a drag on the performance.

Wesfarmers (WES) today released its latest retail performance for the third quarter, which showed a resurgence in Coles’ trading as price deflation in the grocery sector moderated, while its general merchandise chain Kmart continued its winning run, with comparable sales rocketing 7.7 per cent and Officeworks posted total sales up 7.2 per cent for the period.

However, hopes of any early signs of a turnaround of its struggling British hardware chain were dashed as Bunnings UK and Ireland recorded a 13.5 per cent slide in total sales to £211 million as comparable sales plummeted 15.4 per cent. Improved trading at the beginning of the quarter was spoiled by severe weather in March that crunched trading, particularly in the seasonal gardening and outdoor living categories.

Wesfarmers chief executive Rob Scott is slated to update the market on the future of Bunnings UK and Ireland in June, when he could announce the sale or closure of the troubled division.

Bunnings in Australia and New Zealand was once again relied upon to do the heavy lifting, with its total sales for the quarter at $3 billion, up 8.9 per cent, while same-store sales were up 7.7 per cent.

Bunnings’ struggling UK operation.

As Wesfarmers prepares its $20 billion demerger of Coles the conglomerate’s fortunes and profitability will rely more heavily on the performance of Bunnings, with the hardware chain to become responsible for delivering just over 50 per cent of group profits.

The market is also closely watching the trading performance of Coles as it seeks to gain investor support for what will be a new top 30 company on the ASX.

The quarterly sales figures suggest outgoing Coles boss John Durkan has found some traction for his new strategies to arrest a recent run of shrinking sales growth, led by his reinvestment in lower prices as well as focusing on other positive benefits of shopping at Coles, bundled together under the new recently-launched Coles slogan, “good things are happening at Coles”.

Coles said its third quarter sales were $7.8 billion, up 1.3 per cent on the prior corresponding period as like-for-like food and liquor sales increased 0.9 per cent and comparable food sales lifted 0.9 per cent.

Although the quarterly sales result for Coles was below analyst expectations of as much as 1.5 per cent growth, and down from the 1.3 per cent sales lift recorded in the second quarter, adjusting for Easter and the occurrence of New Year’s Day in the third quarter this year it was the strongest comparative sales growth for Coles in six quarters. New Year’s Day is traditionally a poor day’s sales for retailers such as Coles and by falling in the third quarter it shifted 0.3 basis points of sales growth to the second quarter.

As Coles leads into its demerger it will also be able to spruik to investors its 42nd consecutive quarter of comparative sales growth, although it will likely have been beaten again for the quarter by Woolworths, which is expected to release stronger quarterly sales next week.

Coles said food and liquor price deflation was 0.7 per cent for the quarter, a reduction from price deflation of 0.9 per cent in the second quarter primarily reflected by lower supply-driven deflation across produce and meat, and increased supply-driven inflation across dairy categories.

Kmart continued its winning run, as sales for the quarter were $1.2 billion, an increase of 10.2 per cent with like-for-like sales increasing by 7.7 per cent. Adjusting for the timing of Easter in the 2018 financial year, comparable store sales were up 6.8 per cent.

Target is still underperforming, despite years of new strategies, restructures and reviews, as its total sales fell 2 per cent to $544 million and same store sales fell 2.6 per cent. Adjusting for the timing of Easter, like-for-like sales fell 3.2 per cent.