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Target in Wesfarmers sights over poor sales


Wesfarmers says sales from its Target chain fell by 2.3 per cent in the five months to May this year, in the latest bad news for the struggling department store franchise.

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The conglomerate, which also owns Coles, Bunnings, Officeworks and Kmart, told investors this morning that Target’s comparable sales fell by 2.3 per cent between January and May this year.

In a statement to the ASX, Wesfarmers – which yesterday announced it would acquire online retailer Catch Group – said the sales plunge was “highlighting that Target’s current offer requires ongoing repositioning”.

In a strategy presentation briefing also released to investors today, Target managing director Marina Joanou said the chain would place a greater emphasis on its “design capabilities” and digital appeals to customers.

Wesfarmers owns 294 Target stores across the country, including 26 in South Australia.

The conglomerate says it expects combined earnings from Kmart and Target’s operations during the 2019 financial year to come to between $515 million and $565 million.

Wesfarmers managing director Rob Scott says the Kmart Group’s second-half performance had been below expectations, but that it would benefit from increased investment in online and digital initiatives.

The company said today that it was feeling the pressure from increased price competition and cautious consumers, and admitted various changes at Kmart had also resulted in a temporary shortage of goods on shelves.

Scott told investors in a separate briefing there had been no notable lift in consumer sentiment after the May federal election, though the onset of colder weather had been welcome boost for sales.

“The seasonal changeover is a key driver of sales… (so) the cold weather has been helpful (even if) some of the cold weather took a while to arrive,” he said.

Wesfarmers announced in June last year it was scaling back its Target business, cutting the size or number of stores in the chain to achieve a 20 per cent overall reduction in footprint by 2023.

Scott said today that repositioning the department store network, which will include the introduction of more Kmart stores, had allowed its chains to compliment each other instead of competing for space and customers.

Despite the Target slump, Wesfarmers’ first-half profit soared to $4.5 billion – from $212 million in the prior corresponding period – due to $3 billion in one-off items following the demerger of supermarket Coles, and the sale of Bengalla, Kmart Tyre and Auto Service, and Quadrant Energy.

The conglomerate has since embarked on a number of acquisitions, including a $776 move for lithium developer Kidman Resources, and a so-far unsuccessful approach for rare earths miner Lynas.

Scott told analysts today that the company felt “the time was right” to act on opportunities.

“On the acquisition side, I know we’ve announced a few things in recent months, but I think it’s important not to get too carried away by that activity,” he said.

“We’re talking a very very small proportion of out market capitalisation, and indeed capex.”

He said the proposed investment in Kidman was grounded in long-term advantages.

“We don’t know what the long-term price of lithium is going to be …what we do know is that … (the proposed acquisition) is going to be one of the lowest-cost providers globally of lithium hydroxide,” said Scott.

Shares in Wesfarmers were worth $38.25 before trade this morning and have climbed by 18.72 per cent, or $6.03, so far in 2019.

– with AAP

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