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Bunnings does heavy lifting of Wesfarmers' profits

Business

Shares in Wesfarmers have slumped by more than 5 per cent after losses from the group’s coal mines partly offset Coles’ and Bunnings’ strong gains.

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The conglomerate’s net profit rose 1.2 per cent to $1.393 billion in the six months to December 31, up from $1.376 billion in the prior corresponding period.

The group’s retail businesses were behind the profit growth, offsetting the company’s resource business which slipped into the red due to low commodity prices.

Coles, Bunnings, Officeworks, Kmart and Target all recorded earnings growth, with the supermarket chain and hardware retailer being the biggest contributors to revenue.

Wesfarmers managing director Richard Goyder said all of the group’s retailers enjoyed strong Christmas trade.

“Investment in customer value, store network improvement and better merchandise offers and service drove increased earnings across the retail portfolio,” he said.

“Overall, return on capital for the retail portfolio improved strongly as a continuing focus on capital efficiency further leveraged the earnings growth recorded.”

Wesfarmers share price dropped $2.22, or 5.09, to $41.40 at 1130 AEDT.

optionsXpress market analyst Ben Le Brun said Wesfarmers’ result was soild but the market may have wanted more reason to support its share price which was already trading at a premium.

“The market may have been looking for more growth to justify Wesfarmers’ expensive price tag,” he said.

“What undermined the result was the performance of its resource businesses which swung to a loss but the retail component did very well.”

Coles’ earnings before interest and tax (EBIT) increased 5.6 per cent to $945 million and food and liquor sales rose 6.0 per cent.

Bunnings hardware stores lifted earnings 13.4 per cent to $701 million on revenue growth of 10.9 per cent, while Kmart and Target discount department stores grew earnings 9.5 per cent to $393 million.

Officeworks’ earnings rose 18 per cent to $59 million, driven by strong sales growth.

Wesfarmers has created a new department stores division which will be headed by current Kmart managing director Guy Russo.

Target managing director Stuart Machin will shift to a yet to be identified senior role in July.

Earnings from the company’s industrials, which includes coal mines, dropped 87.8 per cent to $22 million.

The interim dividend increased two cents to a fully franked 91 cents per security.

COAL HITS WESFARMERS’ FIRST-HALF GROWTH

* Net profit up 1.2pct to $1.393b

* Revenue up 4.7pct to $33.462b

* Earnings before interest and tax (EBIT) up 1.6pct to $2.11b

* Coles EBIT up 5.6pct to $945m

* Bunnings/Officeworks EBIT up 13.8pct to $760m

* Target/Kmart EBIT up 9.5pct to $393m

* Industrials EBIT down 87.8pct to $22m

* Interim dividend up 2.0 cents to 91 cents, fully franked

AAP

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