Bunnings and Kmart drive profit growth for Wesfarmers

Wesfarmers has reported a 5.7% increase in net profit to $1.14 billion, underpinned by strong performance of Bunnings and Kmart, for the half year ended 31 December 2019.

Revenue for Bunnings was up 5.3% for the half, with earnings increasing 3.1%, despite fewer property sales, due to an ongoing focus on store cost control and continued growth in consumer and commercial markets across all major trading regions and in all product categories, according to Wesfarmers managing director, Rob Scott.

“Bunnings continued to execute its strategic agenda and made significant improvements to the in-store and online customer experience, including range expansion, the rollout of click and collect and the launch of Bunnings’ online marketplace, MarketLink,” he said.

During the half, Bunnings opened eight new trading locations and carried out eight store upgrades and expansions. There are currently 13 new stores under construction and five upgrades and expansions to be completed. Product training was delivered to more than 1,400 new category experts and productivity and inventory optimisation was enhanced by analytics.

Bunnings will continue its investment in data and digital capabilities with a focus on building click and collect in New Zealand and establishing a Bunnings technology centre in Bangalore, India. However, the business expects moderate trading conditions to continue as consumers remain cautious while significant weather events and bushfires impact Australian communities.

Revenue for the Kmart Group was up 7.6% with sales increasing $241 million, more than offsetting a sales decline of $67 million in Target. The results from the half include Catch Group from 12 August 2019.

Kmart’s earnings increased compared to the prior corresponding period despite unfavourable foreign exchange rate impacts and higher team member wages. Earnings growth was underpinned by a continued focus on lowest price positioning, strong operational execution and an enhanced product range, with growth achieved across all categories, particularly womenswear and home.

Whilst Target remained profitable, earnings were below expectations and decreased significantly compared to the pcp due to a reduction in customer transactions and poor performance in key apparel categories.

During the half, Kmart opened five new stores including one replacement store and completed 10 store refurbishments, while Target closed four stores as part of its store network repositioning.

Gross transaction value for Catch has increased 21.4% in the period under Wesfarmers ownership with an enhanced Club Catch offer and click and collect for Catch products in select Target stores.

“The acquisition of Catch has strengthened the digital expertise in the Kmart Group and will help drive improvements in online execution and innovation,” Scott said.

In relation to the coronavirus outbreak, Kmart Group is closely monitoring its impact on product availability. “While the current impact is minor, it remains a dynamic situation that is progressing daily.”

Officeworks’ revenue increased 11.9% with earnings up 3.9% in the half. Strong revenue growth was delivered in both stores and online with momentum maintained in the business-to-business segment. However, earnings growth was impacted by continued price investment and higher sales of lower-margin products.

Wesfarmers victim to underpaying employees…again

Following payroll errors previously identified for its Industrial and Safety division in October 2019, Wesfarmers conducted extensive reviews of payroll systems and processes and as a result, identified additional payroll errors. It has set aside $9 million for underpaid Target employees, in addition to $15 million already set aside for remediation for the Industrial and Safety division.

“Immediate steps are being taken to rectify identified issues, notify and repay affected team members, including interest, and ensure accuracy in the future through a robust program of auditing and monitoring,” Scott said.

In September 2019, Wesfarmers also admitted to unpaid superannuation entitlements to current and former Bunnings employees, which was later revealed to total $6.1 million including compensation.

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