Heavy discounting continues for Wesfarmers

Published on Thu, 16/02/2012, 02:52:47

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Wesfarmers achieved a 5.2 per cent uplift in half year profits after the group’s retail business, in particularly its Coles supermarkets, delivered a strong earnings growth.

The retail giant reported a net profit after tax of $1.176 billion for the six months to December and excluding non-trading items it was $1.203 billion.

Total earnings for the retail portfolio increased by $113 billion to $1.558 billion for the first half. According to the company, the increase in earnings was strong given consumer sentiment remained subdued as a result of lower consumer confidence, widespread price deflation and increased levels of competition, both in-store and online, partially driven by a strong Australian dollar.

Coles delivered strong earnings growth in the half of 14.1 per cent to $656 billion, double the rate of revenue growth, underpinning a solid improvement in return on capital.

The result reflects the sustained momentum in the turnaround of Coles as customers continue to respond favourably in increasing numbers, as evidenced by record-breaking Christmas sales, to the ongoing improvements in value, quality and service throughout the store.

Similarly, Bunnings achieved positive results with earnings up 6.1 per cent to $485 billion following the benefits of category and network expansion as well as cost management initiatives.

Bunnings continued to expand its store network with five new warehouses and two new trade centres opening in the half. At 31 December 2011, 16 warehouses were under construction with 10 expected to open in the second half of the 2012 financial year.

Despite heavy price deflation in technology and furniture categories, Officeworks generated earnings of $34 billion, up 9.1 per cent. Growth in earnings was supported by another period of double digit customer transaction growth.

Likewsie, Kmart delivered a strong result with earnings up 12.6 per cent to $197 billion for the half and a trading EBIT margin of 8.6 per cent. Growth in margins was supported by better sourcing, pricing disciplines and stock management, as well as solid growth in customer transactions and volumes sold.

Managing director Richard Goyder said it was a good result to increase the group’s underlying profit by 5.2 per cent, especially given the challenging conditions experienced by the retail division.

“Continuing improvements in the turnaround retail businesses of Coles, Kmart and Officeworks were evident. These businesses reported strong increases in customer numbers and unit volumes sold, as well as further gains in operating efficiencies, reflecting in combined earnings growth of 13.4 per cent for these businesses,” he said.

“Bunnings recorded another solid result despite ongoing deflationary impacts, as consumer and commercial customers continue to respond well to the focus on improving price, range and service.”

On the other hand, Target’s earnings of $186 million were down 9.7 per cent compared to earnings in the first half last year. The results were affected by lower customer numbers and reduced margins due to heightened promotional activity in the market. Changes made to Target’s promotional program late in the half resulted in an improvement in December trading.

Goyder said looking forward that although the retail trading environment was expected to remain subdued in the second half, the outlook for the group remained positive.

“We anticipate continued improvement from the Group’s retail businesses, increased export coal sales volumes, following the completion of the current expansions, and a better Insurance division result, on the basis of a return to a more normal pattern of claims,” he said.


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