Wesfarmers first-half profit dives 87pc

One of Bunnings’ new stores in the UK.
MIKE CHERNEY
February 21, 2018
The Australian

Wesfarmers, which operates everything from coal mines to department stores, said its half-year net profit fell by 87 per cent, reflecting planned writedowns at its Bunnings unit in the UK and Ireland and its Target chain in Australia amid struggling sales.

Net profit for the six months through December was $212 million. Excluding the writedowns, net profit was roughly $1.5 billion, a decline of nearly 3 per cent. Operating revenue, however, rose about 3 per cent to nearly $36 billion.

The company (WES) declared an interim dividend of $1.03 per share, the same as the prior period.

Managing director Rob Scott highlighted strong momentum at the Bunnings hardware chain in Australia and New Zealand, as well as Kmart and Officeworks, but added that was offset by losses at Bunnings in the UK and Ireland and lower Coles earnings following investments in price and service.

Looking ahead, Wesfarmers said the Coles business is expected to improve and that Kmart’s momentum should continue. Office-supply chain Officeworks has had a strong start to the fiscal second half. Meanwhile, a review of the Bunnings UK business is ongoing and the company plans to update the market in June.

At Coles, earnings before interest and tax fell by 14 per cent in the half. But Bunnings in Australia and New Zealand posted earnings growth of 12 per cent and department-store earnings, including Kmart and Target, rose 7 per cent. Officeworks earnings were up 10 per cent and the industrials division grew 19 per cent.

The company has been focusing lately on its retail chains, agreeing in December to sell its Curragh coal mine for $700 million to U.S. producer Coronado Coal Group. The company said at the time that it would continue to explore options for its stake in the Bengalla coal mine.

Still, conditions at some Wesfarmers-owned retail chains could get tougher moving forward. A cooling housing market in Australia could eventually dent sales at Bunnings, and the supermarket sector, long dominated by Wesfarmers-owned Coles and rival Woolworths, is facing competition from new entrants. Wesfarmers-owned department stores will see a major challenge from Amazon.com as its ramps up its offering in the country.

Underscoring some of those difficulties, Wesfarmers earlier this month said it planned to book the writedowns at its Bunnings unit in the UK and Ireland and its Target department store in Australia in the fiscal first half.