The retirement of Kmart and Target boss, Guy Russo might just have been the most important story from yesterday’s releases from Wesfarmers and not the profit or the fact that Wesfarmers’ shares hit record highs in trading yesterday.
Russo revitalised Kmart for Wesfarmers, joining 10 years ago (he’s a former boss of McDonald’s in Australia and in China) and turning it into the most profitable department store retailer in the country with sales growth and profit margins that the likes of Myer, David Jones and Big W can only dream of these days.
In early 2016 Wesfarmers merged Kmart with Target and promoted Russo to oversee both, especially the attempted revitalisation of the underperforming Target.
Up to yesterday the recovery signs were tentative, but such is the market confidence in Russo, it was allowing him and Wesfarmers time to see some signs of recovery.
That was despite another write down in the value of Target in the year to June of more than $300 million.
And then, out of the blue and separate to the profit report, Wesfarmers yesterday announced Russo would be retiring (and staying on as a consultant until the end of the 2019 financial year).
Sales and earnings have more than trebled under Russo at Kmart as he revamped stores, product offerings and fattened margins and convinced staff that the chain had a future.
"Wesfarmers today announced that Guy Russo will retire as Chief Executive Officer (CEO) of Wesfarmers’ Department Stores division and Managing Director of Target. Ian Bailey, Managing Director of Kmart, will assume the additional responsibility of leading the Wesfarmers Department Stores division from 1 November 2018 and Marina Joanou, Chief Financial Officer of Wesfarmers Department Stores division has been promoted to Managing Director of Target effective immediately.
"Following 1 November 2018, Mr Russo will remain as an advisor to Wesfarmers and the Department Stores division for the remainder of the 2019 financial year.
"Wesfarmers Managing Director Rob Scott said Mr Russo had made a significant contribution since joining Wesfarmers 10 years ago as Managing Director of Kmart, leading the transformation of the brand into Australia’s most successful department store before becoming CEO of the new Department Stores division in early 2016.”
The results yesterday show just how successful Russo was. The department store group reported revenue of $8.837 billion for the year, up 3.6% on 2016-17 above the prior corresponding period,“ with continued strong growth in Kmart partially offset by lower revenue in Target.”
Earnings rose 21.5% $660 million, "representing record earnings under Wesfarmers’ ownership, with both brands achieving growth on the prior corresponding period. During the year, a pre-tax non-cash impairment of $306 million was recorded in Target, reflecting a moderated outlook for the business.”
Kmart’s total sales increased 8.0% during the year, with comparable sales increasing 5.4%. "The increase in sales was driven by double digit growth in customer transactions and units sold, as well as growth in items per basket. All categories achieved good growth, with particularly strong performance in home and kids general merchandise.
During the fourth quarter, Kmart’s sales rose 5% to $1.440 billion, with comparable sales up 3.3%. Adjusting for the earlier timing of Easter in the 2018 financial year, comparable sales increased 4.1%for the quarter.
Even though Target was weak again in 2017-18 there are signs that improvement is under way. Total sales fell 4.7% (holding back the sharp rise at Kmart) but that was much better than the 14.5% slide the year before And on the important comparable store sales metric, Target’s fell 5.1% in the year which was far better than the 14.9% slump in 2016-17.
When Coles is spun off later this year, Kmart (with Target in tow) will become the second biggest sales and profit centre in Wesfarmers after Bunnings Australia and New Zealand businesses.
That will add pressure on the new management team to perform and keep up with the pace that Russo set. Kmart and Target’s sales exceed those of Myer and David Jones combined and earnings and margins easily top those of Myer, David Jones and Woolies’ Big W.
