Retail giant Wesfarmers (WES) is looking to sell its successful Officeworks chain through a trade sale or a stock market float, as the conglomerate lifted interim dividend after a reasonable profit for the half year.
Wesfarmers increased its interim dividend, by 13.2%, to $1.03 a share. After dipping early following its earnings update, Wesfarmers bounced 2.8% to $43.33.
Directors said total retail earnings for the group were “in line” with the prior corresponding period, thanks to strong results from Bunnings, Kmart and Officeworks.
Wesfarmers said revenue rose 4.3% to $34.9 billion, and earnings before interest and tax (EBIT, a key measure for retailers) were up 15.1% to $2.42 billion.
Wesfarmers’ credited the group’s conglomerate structure for a 13.2% increase in half-year net profit to $1.57 billion – especially the company’s coal operations in Queensland and NSW (which are up for sale).
The coal businesses are now in Wesfarmer’s industrial division which reported earnings of $377 million in the half – a massive $355 million more than the same half last year – thanks largely to “the significant increases in coal prices and strong productions in the second quarter of the financial year,” according to Mr Goyder in yesterday’s statement.
But Target again disappointed while the contribution from Coles was disappointing.
Coles’ same store sales grew 1.3% in the half. But lower prices meant revenue from the supermarket remained steady and earnings fell 6.8% (amount not given) before a series of small one offs, EBIT fell 2.6% for the half to $920 million, the first time for quite a while that Coles earnings have fallen.
"The decline in earnings was driven by lower margins following increased investments in value, which were weighted towards the second quarter, including through the absorption of cost price increases in meat," Mr Goyder said.
The supermarket chain’s sales during the half "built on the strong growth achieved in the previous corresponding half", he said.
Target continued to struggle in the six month period to December 31. The department store’s sales fell 18% and earnings before interest and tax fell 78% – from $74 million in the first half of last year to $16 million.
Mr Goyder said Target’s $58 million earnings collapse reflected a "difficult trading period and impacts associated with significant transition work underway".
The problem riddled chainis being overhauled by the architect of Kmart’s turnaround, Guy Rosso, who now heads up it and Kmart.
Kmart’s strong performance continued in the half. Its sales grew 8.9% and its earnings rose 16% to $371 million (as its profit margins again widened), but that wasn’t enough to stop Target’s performance dragging the combined department store division’s earnings backwards by 1.5% to $387 million.
Sales at Bunnings grew 8.3% and same store sales grew 6.5%, driven by “continued investment in customer value, stores and online’, Mr Goyder said, sending earnings up almost 10% to $770 million.
Bunnings’ foray into the United Kingdom and Ireland, where it has bought the Homebase chain and will gradually turn them into Bunnings stores, ran at a $48 million loss. Wesfarmers bought Homebase mid last year an opened its first Bunnings pilot store in Hertfordshire, a fortnight ago.
Mr Goyder will hand over the reins of the company to Wesfarmers’ head of industrials, Rob Scott, in November.
Mr Goyder revealed in yesterday’s statement that Wesfarmers had started a strategic review Officeworks, the stationery and office supplies chain, which it acquired in 2007 in the Coles purchase.
Earnings in the business had doubled since 2009 and Officeworks was delivering a 13.9% on capital, Mr Goyder said, making it the right time to capitalise on the turnaround.
“Officeworks is well positioned for future growth with a strong competitive position and ongoing initiatives to grow its addressable market,” he said yesterday.
“In light of its performance, options to monetise the value created for shareholders, including via an initial public offering, are being evaluated,” he said
Mr Goyder said Wesfarmers would hold onto Officeworks if the sale options available did not match its valuation of the business.
There are 163 Officeworks stores across Australia. Total revenue in the network jumped 6% in the six months to December 31 to $927 million and earnings before interest and tax grew 5% to $62 million.
Harvey Norman could be one trade buyer. It started the Offis chain in 2008 (the Officeworks purchase in the Coles deal) in the belief that Wesfarmers didn’t know what it was doing and that Officeworks was vulnerable. That was wrong – Harvey Norman closed Offis a year later in 2009.
