Wesfarmers shares rose 2.7% yesterday as its third quarter sales report confirmed that its various chains are humming – with the exception of Target.
Wesfarmers shares ended the day at $42.20 after the company confirmed that Target would be further restructured, with poorly performing stores closed and others converted ito Kmart outlets.
The March quarter sales report confirmed that Kmart is now the star chain in the Wesfarmers empire with same store sales surging, even after adjusting for the earlier Easter holiday break (which sees a jump in food sales, especially chocolates) and February 29.
At the same time the Bunnings hardware chain again did very well.
Kmart saw same-store sales jump 15.2%, or 12.3%, to $1.1 billion for the quarter after accounting for Easter adjusted, easily beating market forecasts of around 6.5%.
Even the struggling Target chain managed to eke out some gains, with same-store sales edging up 1.4% to $678 million.
Wesfarmers’ total retail sales rose 5.6% to $13.8 billion, boosted partly by the early timing of Easter and an extra day’s trading in February.
Same-store food and liquor sales at Coles rose 4.9% in line with growth in the second quarter (which included the big Christmas selling season) and well ahead of the 3.4% growth seen in the March quarter of 2015.
Adjusted for the early timing of Easter, Coles’ same-store food and liquor sales rose 4.4%, in line with market forecasts.
Coles’ topline food and liquor sales rose 5.9% to $7.5 billion as the retailer opened and refurbished stores, and would have been higher if not for deflation of 2% as the retailer cut prices to take more share from Woolworths and Metcash, and fight off the ever expanding Aldi (which is about to open in Perth).
Officeworks sales in the quarter were $512 million, up 5.6% on the previous corresponding period. The business recorded positive sales growth in stores and online.
Same-store sales at Bunnings rose 8.3% to a massive $2.6 billion (more than Kmart, Officeworks and Target combined), compared with 9.4% in the previous corresponding quarter.
In the Coles Express convenience chain, sales, including fuel, for the quarter were $1.4 billion, down nearly 9% on the prior corresponding period with lower fuel prices and volumes offsetting continued growth in convenience store sales.
For the quarter, headline fuel volumes fell 6.3% and comparable fuel volumes fell 10.1%. Convenience store sales jumped nearly 13% for the quarter and a solid 8.1% on a comparable store basis.
Food and liquor sales for the financial year to date grew 5.6% to $24.2 billion, boosted by a “record number of Easter transactions”, according to Wesfarmers managing director Richard Goyder.
In media interviews after the sales data was released, Mr Goyder Wesfarmers said we can expect major clearance activity and store closures at Target as new department stores chief Guy Russo kicks off a strategic review, clears slow moving winter stock and exits product lines that overlap with Kmart.
Mr Goyder said Wesfarmers had no plans to get rid of the Target brand after merging the two department stores into a single operating division run by Mr Russo.
However, Mr Goyder said more loss-making or underperforming Target stores would be converted to Kmart stores and he flagged more "oordination" between the two chains.
He also seemed to rule out major inventory write-downs at Target but said there would be significant restructuring costs as staff numbers were cut and as Target moved its head office from Geelong to western Melbourne.
And finance director Terry Bowen said Target would also need to step up clearance activity to move slow-moving winter stock and lines deemed non-core under Mr Russo’s new strategy.
"There’s no doubt we’ll see that at Target over the next quarter," said Mr Bowen.
"It has been extraordinarily warm," said Mr Goyder.
“I think there’s been a slow start to winter apparel sale across the board and that will affect Target more than Kmart but has some impact on Kmart,” Mr Goyder added.
