Wesfarmers lifts profit by 22%

Thanks to Kmart and Officeworks.

Despite disappointing results from Coles and Bunnings UK, pleasing performance from Bunnings ANZ, Kmart and Officeworks contributed to a strong financial result for Wesfarmers for year ended 30 June, 2017. Earnings before interest and tax (EBIT) increased by 22% to $4.4 billion and net profit after tax (NPAT) jumped 22.1% to $2.87 billion.

Coles

Coles reported a 13.5% slide in EBIT to $1.6 billion, while revenue declined by 0.1% to $39.2 billion. Wesfarmers expects the operating environment to remain highly competitive and FY18 earnings are expected to be affected by the annualisation of 2H17 investment in the customer offer, lower property earnings and lower financial services earnings.

Bunnings

The home improvement division recorded a 2.6% rise in EBIT to $1.25 billion. Revenue for Bunnings ANZ increased by 17.4% to $13.6 billion, while total store sales growth was 8.9% and store-on-store growth was 7.3%.

Wesfarmers recognised expenses for store closure provisions due to an agreement with Home Consortium for new sites, as well as additional write-downs related to future network changes and in-store display assets. In FY17, Bunnings ANZ opened 18 new trading locations.

Revenue for Bunnings UK and Ireland was $2.1 billion, while loss before interest and tax was $89 million and 4Q17 sales decreased by 6.8% in local currency terms. Wesfarmers stated that significant disruption impacted performance as Homebase repositioning continues.

Wesfarmers expects 15 to 20 pilot stores by 31 December, 2017, subject to approvals, with further investment predicated on successful pilots. A core focus will be on strengthening the leadership team, realigning organisational structures and relaunching kitchen and bathroom offers.

Kmart and Target

EBIT for the department store division soared by 97.5% with $13 million of restructuring costs associated with the planned relocation of Target’s support office and $145 million of restructuring costs and provisions to reset Target. However, revenue declined 14.6%.

Wesfarmers said sales for Target were affected by decisive actions taken to transform the business, including removal of loss making products and unprofitable events, lower prices and reduced promotional activity, and a reset of merchandise disciplines. One store was opened and four stores were closed, including two Kmart conversions, in FY17. Wesfarmers plans to open five new stores.

EBIT for Kmart jumped 17.7% to $553 million and revenue grew 7.5% to $5.6 billion underpinned by increased customer transactions and units sold. There were 11 new Kmart stores opened, 33 major refurbishments completed and seven new Kmart Tyre & Auto Service centres opened in FY17. Wesfarmers plans to open another 10 stores and complete 35 store refurbishments in FY18.

Officeworks

Officeworks recorded a healthy 7.5% increase in EBIT to $144 million and 6.1% increase in revenue to $1.96 billion thanks to new and expanded product ranges, merchandise layout and store design changes as well as relentless focus on customer service. There were six new stores opened, ongoing enhancements to the online offer and strong momentum in the B2B segment in FY17.

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