Wesfarmers says it will fast track its review of struggling department store Target in the wake of a sharp fall in sales through the retailer so far in April.
That means a possible sale or restructuring of the chain that will almost certainly mean job losses at a time when unemployment is high and rising.
Chief executive Rob Scott said on Tuesday while sales at Target and sister store Kmart had been consistent through the third quarter, both revenue and profit took a “significant” hit in April as fewer Australians visited shopping centres.
“Given the high degree of fixed occupancy costs, a sustained decline in sales momentum will have a material impact on the profitability of Kmart and Target,” he said.
“Margins have also been impacted by higher levels of clearance activity and the increased cost of online fulfillment.”
“While Kmart remains profitable, Target earnings have decreased significantly.”
Mr. Scott said this had prompted Wesfarmers to accelerate its review of Target, which it first raised with the 2018-19 full year figures last August.
Wesfarmers said the department store’s “unsatisfactory financial performance” will be addressed to make the company commercially viable.
Now conditions have worsened significantly since 2018-19 and the retailer’s condition seems to have moved to critical.
Target has been a longstanding headache for Wesfarmers – over a billion dollars has been written off the value of the retailer in the past six years, it has been restructured twice – the last involving lumping it in with Kmart in a combined group rather than as a completely separate business.
Wesfarmers said it would provide more details prior to the June 30 balance data once the strategic review is completed.
Elsewhere, the company said that “Over the last two months, Bunnings and Officeworks have experienced significant demand growth as customers and their families spent more time working, learning and relaxing at home.”
“As a result, sales growth in Bunnings and Officeworks for the third quarter of the financial year and the first three weeks of April has increased relative to levels achieved in the first half of the financial year.
“Given the disruption to usual customer shopping patterns and potential future changes to government measures, it is uncertain whether the higher levels of sales growth will continue for the remainder of the financial year,” The company told the ASX
With a $2.1 billion windfall from the sale of most of its remaining Coles Group shares, Wesfarmers says it is well-positioned to weather any long-term effects of the coronavirus crisis.
The company has also extended its debt facilities by $2 billion to a total of $5.3 billion, which Mr. Scott indicated would allow Wesfarmers to pursue any potential investment opportunities.
“COVID-19 has had a profound impact on our way of life and business operations and the actions we are taking with our balance sheet and in our businesses are focused on sustaining performance in an uncertain future,” he said.
“We recognise that this is an uncertain and worrying time for many team members and customers. Across the Group, we remain focused on the health and safety of our team and our customers and the actions we can take to support our team, our customers, our suppliers, and the community,” he said in the ASX filing.
Wesfarmers shares drifted down 0.3% to $37.73.
