Wesfarmers assesing earnings impact of coronavirus across operations

Wesfarmers says Target is feeling the pinch but cash from Coles demerger and Bunnings sales growth giving it breathing space.

Wesfarmers operates the dominant Bunnings retail chain.

Bunnings owner, retail conglomerate Wesfarmers has said it is still assessing the impact of coronavirus pandemic across its operations which has provoked increased uncertainty across global markets.

In a note to investors issued to the ASX, the company said it has experienced continued sales growth to date across most divisions, but also noted changing consumer spending trends towards essential purchases has prompted weaker sales in discretionary spending products.

Managing director Rob Scott said the group has experienced significant demand for essential cleaning and hygiene products and home office supplies across its retail businesses.

Bunnings, Target, Officeworks and Kmart are companies within the conglomerates portfolio.

Officeworks and office supply stores have become the latest target of the panic buy saga, as more people begin to self isolate and work from home.

Officeworks Windsor has sold out of monitors as people prepare to work from home due to Corona Virus, Wednesday, March 18, 2020 (AAP Image/Richard Walker)

“Despite the continuation of sales growth to date across most operating divisions and moderated supply chain risks, there has in recent days been weakness in sales of discretionary products such as apparel, particularly in Target,” the company said in a statement to the ASX.

Mr Scott said Wesfarmers expects the consumer behaviour to continue until the effects of the virus can be contained.

“All of the group’s businesses have implemented a series of actions to protect the health and safety of our teams, including restricting travel and meetings, adopting flexible working arrangements and implementing additional health and safety protocols in stores, support offices and other workplaces,” Mr Scott said.

In terms of earnings impact Wesfarmers says it expects additional operating costs due to activities to prepare and respond to COVID-19 and some increases in the cost of goods sold as a result of the lower Australian dollar. But it still getting an overall picture of the change.

“Given the significant level of uncertainty, the Group is not able to provide an estimate of the impact of COVID-19 on Wesfarmers’ full-year financial results,” Wesfarmers said.

Wesfarmers CEO Rob Scott after announcement of half year results Picture: Marie Nirme

The group expects an increase in its operating costs while it responds to COVID-19 and noted a lower Australian dollar was likely to increase the cost of goods sold.

Mr Scott said Wesfarmers’ sale of its 4.9 per cent stake in Coles supermarkets for approximately $1,050m has provided “significant flexibility” for the company.

Coles supermarkets was spun out of the Wesfarmers portfolio in November 2018.

According to Wesfarmers, its industrial and safety businesses are experiencing strong demand for critical safety products, including protective clothing, medical gases and cleaning and hygiene products.

It also noted its industrial businesses are generally performing in line with management expectations, despite a decline in the oil prices which has impacted prices in its chemicals, energy and fertiliser segments.