Wesfarmers reports growth slowdown at Coles, Bunnings

Wesfarmers shares slumped 5pc after slower sales growth at Coles and Bunnings, in part due to Masters’ fire sale.

Wesfarmers managing director Richard Goyder.

Wesfarmers has seen its shares slump more than 5 per cent after its quarterly sales report disappointed against the market’s expectations, with sales at Coles growing at the meekest rate in seven years.

The company detailed a slowdown in growth at its high-flying Bunnings unit as well, with the WA-based conglomerate hampered by the liquidation sale at Woolworths’ failed hardware operation Masters and strengthening competition in the grocery sector.

In its first quarter update, Wesfarmers (WES) said headline food and liquor sales within its Coles arm climbed 2.9 per cent to $7.9 billion, while comparable sales were up a modest 1.8 per cent.

The closely-watched comparable sales number reveals a significant slowdown from recent growth rates of 4.9 per cent through the middle of fiscal 2016 and, most recently, 2.8 per cent in the June quarter.

Analysts had anticipated same-store sales growth of 3 per cent, with the 1.8 per cent reading instead the lowest number since 2009.

The figures pushed Wesfarmers shares down 5.1 per cent to $41.70 by 2.30pm (AEDT), leaving it on track for its worst daily fall since 2009.

Decelerating sales growth came despite an easing of deflationary pressure on sales prices, which has significantly hampered the major supermarket operators over the past 12 months.

Deflation through the September quarter was 1 per cent, an improvement from 2.4 per cent in the prior three months.

“In our food business, we have seen a change in market conditions over the past year,” Coles managing director John Durkan said.

“Market growth has slowed, while at the same time there has been an increase in competitive intensity. Despite these changes in market conditions, our focus on the customer will not waver.”

Similar lacklustre numbers were seen at Bunnings in comparison to recent quarters, with total store sales growth of 7.3 per cent and comparable sales growth of 5.5 per cent.

The numbers represent a cooling off from growth rates of 11 and 11.6 per cent over the prior two quarters as a fire sale at outgoing rival Masters hurt momentum.

The group warned the “disruption” from Masters would also weigh on its second quarter numbers.

“Bunnings Australia and New Zealand achieved total sales growth of 7.4 per cent during the quarter, extending its very strong performance despite an impact from the stock liquidation activities of the Masters business,” Wesfarmers managing director Richard Goyder said.

Bunnings’ expansion into the UK through this year’s purchase of Homebase continued to track to plan, Bunnings boss John Gillam said, with sales of $554m in line with expectations.

“There is a strong focus within the business on continuing to transition core ranges across to home improvement and garden products,” the company said.

“Pleasing progress is being made with this work.”

The biggest disappointment through a broadly uninspiring first quarter was again Target, with the discount department store booking a sharp 17.1 per cent drop in sales for the quarter to $643 million.

Disappointing: Target

Wesfarmers was forced to book an impairment of more than $1 billion on its Target unit in fiscal 2016, with momentum showing no signs of a turnaround in the near-term.

The division reported a fall in comparable store sales of 21.9 per cent, a further deceleration from a 6.3 per cent retreat in the June quarter and 1.4 per cent growth in the March quarter.

“While early in Target’s transition, and despite some progress being made on pricing, inventory and range rationalisation, poor underlying trade momentum proved challenging in the quarter,” department stores boss Guy Russo said.

“We are committed to converting Target to an EDLP (everyday low pricing) business and, at this early stage of the transition, improvements to product and ranges have not been sufficient to offset reduced promotional activity and investments made in price.

“Target is making significant changes to its operating model which will take time to implement.”

Peer Kmart outperformed, although it too saw a drop-off in comparable store sales growth, with growth rates declining from 15.2 per cent to 9.6 per cent ahead of this quarter’s 8.2 per cent sales gain.

“Our commitment to deliver the lowest prices on everyday items continued to resonate well with customers, delivering growth in both transactions and basket size on the prior corresponding period,” Kmart managing director Ian Bailey said.

“We remain focused on improving the customer experience through further investment in the store network, with over half of all stores now in the renewed format.”

Wesfarmers’ Officeworks business continued to track steadily, with sales rising 7.5 per cent to $461m.

Officeworks recorded sales growth of 5.6 per cent and 8.9 per cent, respectively, over the prior two quarters.

“Customers continue to respond favourably to our ‘every channel’ strategy which seeks to provide a unique one-stop experience across every channel – anywhere, anyhow, anytime,” Officeworks managing director Mark Ward said.

Its fuel business endured another challenging quarter, with comparable fuel volumes down 10.7 per cent and comparable convenience store sales growth (excluding fuel) sliding to a growth rate of 3.2 per cent, from 3.8 per cent in the June quarter.

At 10.10am (AEDT), Wesfarmers shares skidded 3.5 per cent to $42.435.