Is Wesfarmers about to join a long list of Australian companies have entered the UK economy and been forced to retreat after missteps or worse?
Law firm Slater and Gordon is the latest to have ruined the business with a UK adventure that went expensively wrong, destroying the company and forcing shareholders to lose well over $1 billion (Fosters, NRMA Insurance, the AMP and NAB are among those that survived, despite massive losses).
Wesfarmers revealed in its first quarter sales update that Bunnings UK adventure was not going well with weak sales and poor returns.
Wesfarmers said its Bunnings United Kingdom and Ireland division had sales of £276 million ($A457 million) in the first three months of the financial year, down from £320 million a year earlier.
Wesfarmers fell 2.9%, to $41.49 however, after the update on first-quarter trading and which revealed in part that growth in its food and liquor businesses in Coles was not as strong as expected.
Bunnings bought the Homebase business in January 2016. It is in the process of converting Homebase to the Bunnings brand and format, with eight pilot Bunnings stores now trading alongside its remaining 244 Homebase outlets.
“While the performance of Homebase is disappointing, we continue to be encouraged by the performance of the Bunnings pilots,” Bunnings group managing director Michael Schneider said in yesterday’s statement.
Homebase sales were hurt by "significant clearance" of discontinued products, Wesfarmers said.
Bunnings UK and Ireland’s revenue dropped 17.5% in Australian dollar terms, and sales fell nearly 12% when accounting for store closures. The division swung to a $89 million loss in the 2017 financial year, Wesfarmers revealed in August.
Bunnings’ Australia and New Zealand business saw sales growth of 11.5% and that’s the big problem for Wesfarmers – the stellar results in its home markets are being eaten away by the costs of the UK move.
Bunnings same store sales surged 10.8% in the latest quarter, almost double the 5.5% reported in the same quarter of 2016.
Wesfarmers won’t move any time soon in the UK, it has to allow the expansion and conversion of store formats to have a chance to work, but the longer the losses happen and destroy the gains back home, the greater the pressure from big shareholders will be for action.
Elsewhere in the Wesfarmers empire, supermarket Coles saw a 1.5% rise in topline in food and liquor sales, but a weak 0.4% rise in same store sales terms.
That was down sharply from the 1.8% same-store sales growth in the September quarter of 2016.
Wesfarmers managing director Richard Goyder, who retires at next month’s 2017 AGM, said the supermarket achieved sales growth despite price deflation of 2.3% during the quarter.
But Coles’ overall result was dragged down by a 9.5% fall in revenue from its convenience stores, pushing total sales 0.3% lower to $9.37 billion.
The convenience store decline was largely driven by lower fuel sales at Coles Express service stations, which were down 20% compared to the same quarter last year.
Sales at discount department store Kmart grew 9 per cent to $1.36 billion, but same store sales growth slowed to 4.9% from 8.2% a year ago. Target continued to struggle with overall sales falling 6.4% to $602 million.
Officeworks’ sales were up 7.8% to $497 million with increases in instore and online transactions, according to Wesfarmers yesterday. That remains one of the company’s most consistent performers.
