The Coles acquisition seems to be paying off for Wesfarmers with a strong rise in revenues and earnings in the year to June 30.
But while the company surprised some with a 44% rise in annual profit, the market thought otherwise and sold down the shares by more than 4%.
The shares lost $1.10 to $25.40, a fall of more than 4% on a day when the overall market was flat.
Perhaps it was a case of buy on the lead up, sell on the result and take profits.
Or was it the warning that the group’s resources business, mostly coal in Queensland and NSW and WA, would see a sharp fall in earnings this year.
But while coal was very profitable, the company is now a retailer with industrial and resources bits stuck on.
The warning on earnings from resources was a reminder to investors who may have forgotten about the coal side of Wesfarmers’ operations.
The problem seems to be worries that the expected fall in coal earnings won’t he covered by higher earnings from Coles, Bunnings and the other businesses.
But with 10,000 jobs added to the business (perhaps something investors didn’t like in their perverse way), Wesfarmers seems to be another retailer to have benefited mightily from the federal government’s stimulus.
Wesfarmers lifted net profit to $1.535 billion in the year ended June 30, from $1.063 billion in the previous year, according to yesterday’s 2009 profit statement.
Ebit rose 34% to $2.977 billion.
Revenue jumped 52% to $51 billion, with more than half of that coming from the Coles division, which comprises supermarkets, liquor, fuel and convenience goods.
Wesfarmers said it also enjoyed "significant" revenue growth in its resources, Bunnings hardware (and Officeworks) and Target divisions.
"The turnaround of Coles continues to meet the company’s expectations with a stronger in-store offer driving increasing customer numbers and basket growth," Wesfarmers said in the statement.
"Performance across the retail businesses was strong against the backdrop of the slowing economy."
Coles generated revenue of $28.8 billion and underlying earnings before interest and tax (EBIT) of $831 million for the 2009 financial year.
Wesfarmers said the trend over successive quarters in Coles’ food and liquor comparable store sales growth was encouraging with fourth quarter growth of 7.3%, driven by increased customer numbers.
For the full year, total food and liquor store sales grew by 6.2% and comparable store sales growth was 4.6%. it’s not Woolies, but on these figures, it’s not the old sloppy sluggish Coles
Managing Director Richard Goyder said the profit increase was a good result in a challenging year impacted by a global and national economic downturn.
"We now have exceptional teams in place leading all of our businesses with clear strategies that underpin future growth plans," he said on Thursday in a statement.
"In particular, the improvement in Coles is very encouraging with its performance reflecting good customer response as we progress through the early stages of the five year turnaround plan."
The group’s Bunnings hardware chain store business lifted EBIT by 11.9% to $659 million, with comparable store sales up a very solid 10.1%. Officeworks generated "encouraging" EBIT of $65 million.
"Operating revenue for Officeworks was $1.3 billion for the year with the retail network recording sales growth of 7.7 per cent and a second half growth of 11.1 per cent."
The Target general merchandise store chain recorded EBIT of $357 million while Kmart earned EBIT of $109 million, but with no growth in same store sales.
"Kmart’s turnaround is showing early signs of progress following the introduction of new leadership and strategies in the second half of the year. It achieved operating revenue of $4.0 billion for the year,’ the company said.
Wesfarmers’s results included EBIT results for Coles, Kmart, Officeworks and Target covering the November 23, 2007 to June 30 2009 period, so it did not provide any previous comparable results.
Wesfarmers said underlying retail trading conditions remain volatile and difficult to predict, despite recent signs of growing consumer confidence.
It didn’t give any guidance, except the warning on the expected slump in profits from its coal business.
(That’s similar to the comments this week from The Reject Shop in its outlook for 2010.)
"The expected absence of further government stimulus packages, which had some impact on this year’s results, is another factor contributing to a degree of uncertainty about the future," it said.
Wesfarmers said earnings from its resources division are expected to "reduce significantly" in 2010, because of the sharp price cuts in coking and steaming coal export contracts.
The division posted EBIT of $915 million in 2009, up 116.3% from $423 million in the previous year.
"Subject to economic conditions, improvement is generally expected from the other industrial businesses, in particular chemicals and fertilisers, as they recover from the external events that affected them during the year," Wesfarmers said.
"Wesfarmers remains cautiously optimistic about the economic outlook over the next 12 months although cognisant of a degree of ongoing fragility," it said.
Wesfarmers declared a final dividend of 60 cents a share, which was above guidance given in February for a final dividend of 50 cents,
The total payout for the
