Wesfarmers records jump in food, liquor sales

Coles had bumper Easter sales but the story was different at Target in the third quarter.

Wesfarmers has reported a jump in food and liquor sales during the third quarter despite widespread price deflation, with the retailer attributing the gains to a focus on value and customer service.

Sales in the key food and liquor division rose 5.9 per cent to $7.52 billion in the third quarter of fiscal 2016, compared with the third quarter of 2015.

For the first nine months of 2016, food and liquor sales rose 5.6 per cent to $24.18bn, compared with the prior corresponding period.

Wesfarmers managing director Richard Goyder said Coles had a record number of transactions over the Easter period, and that the supermarket’s performance was due to “further improvements in value, customer service and fresh quality”.

Food and liquor price deflation was 2.0 per cent during the third quarter and 1.4 per cent over the first nine months. Every category reported falling prices, except meat and tobacco, the retailer said.

Coles managing director John Durkan attributed the increased sales to price cuts on products that are important to families.

The liquor division’s transformation is progressing in line with expectations, he said.

“Work done on price, range and in-store experience led to improved sales trends throughout the period,” he said.

During the quarter, Coles opened four supermarkets and closed three. Five new liquor stores opened and seven closed.

In the home improvement division, third quarter sales jumped 11 per cent to $2.59bn, compared with the prior corresponding period.

For the first nine months, home improvement sales added 10.9 per cent to $8.09bn, compared with the first nine months of 2015.

Mr Goyder attributed Bunnings’ sales increase to “a solid execution of its strategic agenda, which included ongoing investment in value, service and brand reach”.

The figures do not include Wesfarmers’ recent acquisition of the Homebase business in the UK and Ireland, where it has recently moved to slash jobs and clean out the executive ranks.

Fashion and homewares brands Kmart and Target reported starkly different results.

Kmart’s sales soared 17.9 per cent in the quarter to $1.11bn, compared with the prior corresponding period, with standouts including the home and apparel ranges and Easter-related products. But winter category sales have been slower than last year, which will affect sales growth over the rest of fiscal 2016, the retailer said.

By contrast, Target’s sales increased just 2.3 per cent to $678 million, compared with the third quarter of 2015, with the retailer warning that trading momentum weakened in the quarter and margins were squeezed by clearance sales.

Department stores division boss Guy Russo said sales fell in the categories of womenswear, underwear and homewares.

“Higher clearance activity is also expected in the fourth quarter, with further risk in relation to winter categories,” Mr Russo said.

He said a strategic review of the business was under way and flagged a hit to Target’s fourth quarter results due to “initiatives aimed at establishing a stronger platform for the longer term business turnaround”.

This week, Bank of America Merrill Lynch analyst David Errington said Target could lose more than $150m by 2018 as Wesfarmers merges it with Kmart.