Strong performance offset by restructuring costs
Wesfarmers has reported a significant 83.3% drop in net profit after tax (NPAT) to $407 million for the full-year ended 30 June, 2016. This result includes non-cash impairments of Target and Curragh totalling $2.12 billion before tax, as well as $145 million (pre-tax) of restructuring costs and provisions to reset Target. Excluding these significant items, NPAT for the full-year decreased 3.6% to $2.35 billion.
Wesfarmers managing director, Richard Goyder said strong performance across a majority of the Group’s businesses was offset by challenging trading conditions and restructuring activities in Target.
Commenting on the results in a statement to the ASX, Goyder said: “In a competitive market, the Group’s retail businesses continued to invest in customer value, service, stores and online, as well as improved merchandise ranges to deliver long-term growth and improved returns.
“Excluding Target, the retail portfolio delivered growth in earnings before interest and tax (EBIT) of 7.5%. This growth was offset by weak underlying performance in Target, as well as the cost of restructuring activities following the creation of the department stores division in February 2016 to provide a stronger platform for future growth.”
He also said a highlight for the year was the acquisition of Homebase, the second largest home improvement and garden retailer in the United Kingdom and Ireland.
Coles
- Earnings increased 4.3% to $1.86 billion for the full-year, with revenue growth of 2.7%
- Food and liquor recorded sales growth of 5.1%, with comparable sales growth of 4.1%
- Food and liquor revenue driven by improvements in value, quality and service
Bunnings
- Earning increased 11.6% to $1.21 billion on revenue growth of 21.4%, including the contribution of Homebase from 28 February, 2016
- Revenue increased by 21.4% to $11.6 billion
- Total store sales growth of 11.1% and store-on-store sales growth of 8.1% for the year
- Sales growth was attributed to the delivery of greater digital and physical brand reach, continued commercial expansion and increased customer value
- During the period, 22 trading locations were opened across Australia and New Zealand, including 14 new Bunnings Warehouse stores, seven smaller format stores and one trade centre
Target
- Creation of the department stores structure in February 2016
- Revenue in line with last year with an operating loss of $195 million, including $145 million of restructuring costs and provisions to reset the business
- Underlying loss of $50 million was primarily driven by high levels of seasonal clearance and the impact of a lower Australian dollar on margins
- Total store sales increased 0.2% for the year, with comparable sales declining 0.4%
- Restructuring activity included 257 largely voluntary redundancies and exit from a further eight surplus multi-offsite facilities
- Six stores were opened, including two replacement stores, and five stores were closed
- Two stores will be rebadged to Kmart during the first half of the 2017 financial year
Kmart
- Earnings grew 8.8% to $470 million on revenue growth in 14%
- Total store sales increased 13.5% for the year, with comparable store sales increasing 10.5%
- Improvements in range and productivity, as well as a strong focus on providing the lowest prices on everyday items
- Sales growth supported by continued investment in new stores and refurbishments
- Six stores were opened and 37 store refurbishments were completed during the year
Officeworks
- Earnings of $134 million were 13.6% higher than the prior year, with revenue growth of 8%
- Continued investment in price, service, in-store environment and the online offer, as well as expanded merchandise ranges
- Store layout and design changes, along with ongoing enhancements to the online offer, supported an improved customer experience
- Six new stores were opened during the year
Outlook
Competition in the retail sector is expected to remain robust, with value continuing to be important to customers. Within this environment, the Group’s retail businesses are well-positioned to continue to deliver growth through strategies that are focused on achieving further improvements in value, service and range. These strategies will be supported by ongoing productivity savings and strong cost disciplines. Ongoing merchandise innovations, digital strategies and store network improvements and expansions, are expected to contribute to growth.
Bunnings will continue to progress the establishment of its United Kingdom and Ireland business, with a focus on driving a stronger operating performance in Homebase while establishing pilot Bunnings Warehouse stores and infrastructure in line with a low-cost and high-capability operating model. The 2017 financial year will be a transitional year for Target, with the business focusing on embedding its revised strategy.