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Coles lifts Wesfarmers after UK hit

Trevor Chappell  |  22 Feb 2018Text size  Decrease  Increase  |  
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MELBOURNE - [AAP] Wesfarmers (ASX: WES) says the upcoming spring and summer sales season will be critical to the future of its underperforming Bunnings hardware business in the UK and Ireland but won't say if it will be "make or break".

"The spring-summer season in the UK is very important for the UK home improvement market--it's where the vast majority of sales occur," Wesfarmers managing director Rob Scott said on Wednesday.

Mr Scott said management of the UK Bunnings business was focusing on getting the right range of seasonal products in store and on ensuring that the business had the right promotions around those products.

The business was also reviewing its supply chain, rostering and other factors that will influence the strength of spring and summer trading.

Asked by reporters if the period would be "make or break" for the Bunnings UK business, Mr Scott said: "It's one of a number of very important issues that we're working through--I wouldn't want to speculate further.

"We'll update the market in June on where we get to."

Wesfarmers on Wednesday reported an 86.6 per cent drop in first-half profit to $212 million due to writedowns on its UK hardware business and Target department stores, but tentative signs of improvement at Coles supermarkets appear to have cheered investors.

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Net profit fell on the back of more than $1.3 billion in previously announced impairments, with Bunnings responsible for $1.023 billion of impairments, and Target carrying the remaining $300 million.

The underperforming Bunnings UK and Ireland chain, which Wesfarmers acquired in 2016, booked a loss before interest and tax of $165 million compared to a loss of $48 million a year earlier.

Mr Scott said Target had turned around from a loss-making business to a profitable one but still needed to do a lot better.

Target needed to change its offerings to focus on areas such as homewares, menswear, women's apparel, underwear and beauty products and reduce less profitable general merchandise offerings such as DVDs, electrical goods and books.

Mr Scott said Target could have a smaller but more focused operation in future, with perhaps fewer stores given that online sales were growing significantly.

"But I still think there is a good future for the Target business going forward," Mr Scott said.

Elsewhere among Wesfarmers' businesses, a second-quarter lift in comparable food and liquor sales growth helped Coles supermarkets deliver better-than-expected earnings margins.

Comparable food and liquor sales growth slipped from 1.3 per cent a year ago to 0.9 per cent for the six months to December 31, but the decline was loaded toward the first quarter as growth returned to 1.3 per cent in the second quarter.

The improvement could suggest Coles was making headway against resurgent rival Woolworths.

Mr Scott said Coles was expected to continue to improve its business in the second half.

Wesfarmers shares were $1.23, or 3.02 per cent, higher at $41.99 on Wednesday.

WESFARMERS BUILDS MOMENTUM DESPITE H1 HITS

* Net profit down 86.6pc to $212m

* Net profit excluding significant items down 2.7pc to $1.54bn

* Revenue up 2.8pc to $35.9bn

* Interim dividend flat at $1.03, fully franked

 

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© 2021 Australian Associated Press Pty Limited (AAP) or its Licensors. This is the Morningstar service with content provided by AAP where indicated. AAP reserves all rights, including copyright, in services provided by it. The information in the service is for personal use only, does not constitute financial product advice (whether general or personal) and may not be re-written, copied, re-sold or re-distributed, framed, linked or otherwise used whether for compensation of any kind or not, without the prior written permission of AAP. You should seek advice from a professional financial adviser before making decision to acquire or dispose of a financial product.

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