In an environment marked by cautious consumer sentiment, widespread price deflation and unusually wet and cool weather on the east coast of Australia, which negatively affected consumer spending, Wesfarmers has still managed to succeed.
Its net profit after tax was $1,173 million for the half-year ended 31 December 2010, an increase of 33.4 per cent on the previous corresponding period.
The group’s retail businesses recorded solid earnings growth for the half-year, up 5.6 per cent to $1,445 million, which was mainly driven by Coles, according to Wesfarmers managing director Richard Goyder.
“The performance of our turnaround retail businesses, and in particular Coles, continues to show encouraging results in line with initial acquisition expectations,” he said.
“The strong growth in customer numbers in these businesses is validation that our improvements in product quality, value and in-store experience are resonating well with customers.”
According to the company, improvements made in value product quality, store standards and service levels has helped deliver the 18.3 per cent growth to $575 million for its Coles division.
Progress continues to also be made for Bunnings with earnings up 8.3 per cent to $457 million underpinned by good merchandise execution, a strong focus on cost management and expansion of the store network. Progress also continues to be made with the development of 16 trading locations that were opened during the period.
“Bunnings is well positioned for continued sales growth with good progress being made in further strengthening the business’ key strategic pillars and network expansion given the strong property pipeline in place,” the company said.
Kmart and Officeworks recorded strong growth in earnings of 13.6 per cent and 18.5 per cent respectively on the previous corresponding period as customers continued to respond well to these businesses turnaround strategies and their repositioned offers.
“Officeworks remains focused on reinvigorating the business with further investment planned to enhance the customer offer and expand the network,” it said.
The only let down was Target’s earnings of 206 million for the half were 26.2 per cent down on the record result from last year, with total sales declining by 3.1 per cent. Sales of electrical and entertainment products were down, as was seasonal apparel which was affected by cool and wet weather conditions across many trading locations.
It is expected that second-half retail earnings will be negatively affected by the severe flood and storm events, including cyclone Yasi, experienced in January and February 2011.
“To date, write-downs of damaged plant, equipment and inventory are estimated to be $40 to $50 million with business interruption costs estimated to be between $30 to $40 million,” Wesfarmers said.
“In the short term trading is expected to remain challenging, especially for the Group’s department store retailers given ongoing price deflation, driven by a competitive retail environment and comparatively strong Australian dollar.
“Overall, the Group continues to be optimistic about the future performance of its retail businesses, particularly given the opportunity to extract further improvements from the turnaround businesses of Coles, Kmart and Officeworks.”
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