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Wesfarmers negative result not all bad news

Glenn Freeman with AAP  |  16 Aug 2018Text size  Decrease  Increase  |  
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Despite the conglomerate recording a loss over the financial year to 30 June 2018, Morningstar remains encouraged by margin and business improvements.

Wesfarmers' (ASX: WES) net profit declined 58 per cent to $1.2 billion in the financial year ending June 2018, from $2.87 million in 2017. 

After selling out of Bunnings UK in May for a $375 million loss, Wesfarmers said on Wednesday the collapsed business cost $1.02 billion in impairments, write-offs and store closure provisions.

The group's retail operations achieved a 5.2 per cent increase in earnings, led by strong results from Bunnings in Australia and New Zealand, as well as its department stores and Officeworks.

Target continued to be a problem suffering a five per cent decline in comparable sales growth in the year.

Despite the profit drop, Morningstar senior equity analyst Johannes Faul draws several positives from the result.

"There are no surprises for us here in this result, they're doing well. Wesfarmers' strategy is unchanged, and we expect it to continue to grow and margins to increase somewhat.

"The core businesses performed in line with our expectations, being Bunnings and Coles," Faul says.

Coles retail supermarket

Coles will be spun out of the Wesfarmers group during 2018-2019

Bunnings' Australia and New Zealand lifted pre-tax earnings 12 per cent to $1.5 billion, while supermarket chain Coles, which will be spun off by November - recorded a 6.8 per cent drop in earnings to $1.5 billion.

Wesfarmers will retain 15 per cent of Coles post-separation, which the management says will allow it to focus on generating cash for its leading stores moving forward.

Revenue continued to decline in its department stores division, particularly Target, which was down 5 per cent for the year. "Sales re still shrinking at Target, but they're doing a lot to address that underperformance, and slowing that rate of decline," Faul says.

Though Target sales still fell for the year, declines were around two-thirds lower than in the previous year, when they were down 15 per cent. "Departments store materially surprised on the upside, but only represent 15 per cent of total group earnings," Faul says.

Wesfarmers also announced that Guy Russo, who guided the successful turnaround of Kmart, will retire as chief executive of its department stores division, to be replaced by Kmart managing director Ian Bailey.

"Continued earnings growth is expected across the group's retail businesses," it said in a statement.

Wesfarmers recorded a $123 million profit on its sale of the Curragh coal mine during the year.

Excluding significant items, profit after tax from continuing operations rose 5.2 per cent to $2.9 billion for the year ended June 30, and the group declared a fully-franked final dividend of $1.20 a share, unchanged from a year earlier.

The share price was up around 3 per cent to a new record high of $52.20 at market close yesterday.

UK hardward wears down Wesfarmers

  • 2017/18 net profit down 58 per cent to $1.20 billion
  • Revenue up 3 per cent to $66.883 billion
  • Final dividend $1.20, fully franked

 

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Glenn Freeman is senior editor, Morningstar Australia.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

. Glenn Freeman is senior editor, Morningstar Australia.

© 2020 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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