No profit surge for Coles owner Wesfarmers (WES) after reporting a tiny 1.2% rise in December half year net profit to $1.4 billion, thanks to a solid performance by Woolies killer, hardware chain Bunnings (and with Officeworks assisting) and Kmart.
Revenue rose 4.7% to $33.5 billion in the half year to December 31.
The shares slid nearly 5% yesterday to $41.50 in a day where the wider market sold off heavily towards the end to be down a nasty 2.1%, or more than 100 points.
Despite the weak earnings performance, Wesfarmers boosted its interim fully franked dividend to 91 cents, up 2.2% on the paid for the December 2014 half year when 89 cents a share was paid.
So not any Qantas zoom or Caltex’s fat margins, or even BlueScope Steel’s rebound in these results – or even smaller retailer, The Reject Store (which has had one of the best results of all companies so far).
Wesfarmers non-food and grocery businesses did the trick in the latest quarter – Bunnings/Officeworks and Kmart (with a small assist from Target, which is still lagging).
The group was held back by its coal and industrial interests – where earnings before interest and tax slumped 88% to just $22 million from $180 million.
Coles lifted its EBIT by 5.6% to $945 million, Bunnings and Officeworks saw a 13.8% jump in EBIT to $760 million and the department stores (Kmart and Target) saw a 9.5% rise to $393 million.
Wesfarmers’ Officeworks chain led the first half earnings race among the retail brands, powering an 18% increase in earnings to $59 million on revenue growth of 9.1% .
Bunnings wasn’t far behind, reporting a 13.4% increase in earnings to $701 million on revenue growth of 10.9%.
In fact yesterday’s profit statement was preceded by an announcement late Tuesday that Wesfarmers was merging Kmart and Target into the one business, with Kmart boss Guy Russo gets the top job and Target boss Stuart Machin continues at Target until July and then goes elsewhere in the Wesfarmers empire.
The results revealed why the move and Russo’s promotion – Kmart lifted sales revenue 12.6% in the six months (it is on another planet compared to all other Australian retailers) and earnings up 10.4%, Target grew sales 1.9% and EBIT was up 5.7%.
Kmart’s performance will be the best by any type of department store this half year and probably for the full year. In terms of reveue growth, Kmart stood out in yesterday’s report.
Wesfarmers Half Year Result 24 Feb 16: WES earnings held back by resources business
Wesfarmers CEO Richard Goyder said Wesfarmers retail portfolio delivered a strong increase in EBIT of $176 million or 9.2% during the half, supported by good Christmas trading across all the brands.
“Investment in customers value, store network improvement and better merchandise offers and service drove increased earnings across the retail portfolio,” Mr Goyder said in yesterday’s statement.
"The resources business was [affected] by lower export coal prices and $70 million of currency hedge book losses, depressed conditions across the resource sector also adversely affected earnings in the industrial and safety business."
Mr Goyder foreshadowed future opportunities from its acquisition of Homebase, the second largest home improvement and garden retailer in the UK and Ireland.
Before then, Wesfarmers has to work out what sort of company it wants to be – retailer, or conglomerate held back by underperforming industrial and coal businesses.
