Has COVID 19 been the unlikely saviour of the underperforming Target department store chain owned by Wesfarmers?
Seems so.
Amid the sales surges experienced by Wesfarmers’ stars in Bunnings and Officeworks, with an assist from Kmart, Target seems to have turned the corner in a big way and heading towards a profitable June 30 year for the first time in quite a while.
Wesfarmers revealed in its half year report on Thursday that sales across its Kmart and Target division had been exceptionally strong in the six months to the end of December, growing 9.1% at Kmart and 13% at Target.
Earnings grew 44.3% for the division to just over half a billion dollars, marking a significant turnaround for Target in particular which looks to have as surprise beneficiary of the shopping boom brought on by the COVID-19 pandemic. Kmart also did well but it has been a much better performer than Target now for years.
“[Target is] now expected to be profitable for the full financial year before one-off costs,” the company said in the release. Kmart group earned $453 million in the half
Wesfarmers reported $34 million in one-off costs for the half related to the restructuring of Target, which is [art of a major revamp that involves shutting or converting 167 stores around the country.
At the time it was announced more than a year ago, the revamp of Target has the hallmarks of a last attempt by Wesfarmers to make the format work. COVID-19 and the lockdowns seemed to swamp the changes, but Target has instead thrived.
The Target recovery was one of a number of good stories among Wesfarmers’ businesses which saw group revenue rise a very strong 16.6% to $17.7 billion, and net profit after tax rising 25.5% to $1.4 billion.
Hardware chain Bunnings was again the star (as it was in the final half of 2019-20) with sales at the division soaring on a comparable basis, and earnings topping $1 billion for the half for the first time, up 35.8% to $1.27 billion.
Bunnings saw a 24.4% increase in Bunnings’ revenue to $9,054 million, a 23.7% jump in Officeworks revenue to $1,523 million, a 9% lift in Kmart Group revenue to $5,441 million (including Target), and a 6.6% increase in Chemicals, Energy and Fertilisers revenue.
CEO Rob Scott said the result was pleasing, especially Wesfarmers’ growth in online sales which doubled across the group and topped $2 billion for the half, including Catch.
“Good progress to accelerate the growth of Kmart and address the performance in Target continued during the half and, on a combined basis, Kmart and Target delivered a record earnings result for the period,” he said in the release.
“Sales and transaction volume uplifts from Target stores that have been converted to Kmart stores continue to be very encouraging, and 19 stores were converted during the half. Target’s profitability improved significantly, supported by strong demand and the ongoing simplification of the business.”
Wesfarmers declared an 88-cent dividend, up 17% on the prior corresponding half.
