Although an inglorious exit from an ill-fated hardware expansion in Britain hammered full-year profit almost 60 per cent lower, profit from continuing operations rose 5.2 per cent to A$2.9 billion, beating market expectations.
At a Glance
Profit from continuing operations rose 5.2% to A$2.90 billion.
Homebase debacle cost A$1.377 billion.
Coles posted a 6.8 per cent drop in earnings.
Bunnings, Kmart businesses post record earnings
Bunnings earnings rose 12.7 per cent to A$1.5 billion.
Kmart earnings rose 21.5 per cent to $660 million
Much of that rise was due to double-digit earnings growth in Wesfarmers’ domestic hardware and department stores, which are set to become the company’s core business after its Coles supermarket chain is spun off as part of the major restructuring.
Coles earnings fell 6.8 per cent to their lowest in six years, buttressing management’s decision to get out of the business.
Shares jump to record high
Wesfarmers shares jumped 3.5 per cent after the announcement to a record high of A$52.39, while the broader market edged higher.
Net profit for the retail-to-chemicals conglomerate more than halved to A$1.2 billion for the year to June 30. That was almost entirely due to A$1.377 billion in costs associated with quitting a loss-making hardware business in Britain.
Australian hardware business Bunnings posted a 12.7 per cent rise in earnings to A$1.5 billion, while discount department store Kmart showed signs of a long-awaited turnaround with a 21.5 percent earnings jump to A$660 million.
The results exclude Wesfarmers’ profitable recent exits from its last coalmine and a car repair business.
Often treated as a proxy for the Australian economy, Wesfarmers has embarked on the biggest overhaul of its holdings in 10 years following its failed bid to replicate the Bunnings success in Britain.
Exiting the low-growth Coles business, quitting Britain and selling out of its coal mines at the top of the market would “reposition Wesfarmers for the next decade,” Managing Director Rob Scott said in a statement.
Wesfarmers announced a final dividend of A$1.20, unchanged from last year, and gave no profit guidance for 2019, besides saying the company is “well placed” to grow.
Kaufland compounds Coles problems
Wesfarmers revealed plans to spin off Coles in March taking stock of fierce competition in the sector, and said it expected to complete its separation during fiscal 2019, upon which it is expected to be worth A$16 billion.
While sales grew for the Coles supermarket business, IBISWorld analysts expect this growth will not be strong enough to outperform its rival Woolworths, which has been a reoccurring trend in recent years.
“The Coles brand has recently come under increased price competition from Woolworths and ALDI, which has weakened sales growth and caused the company’s market share to decline over the past two years.
“Kaufland’s entry into the Australian market could potentially compound this trend,” said Senior Industry Analyst Andrew Ledovskikh.
IBISWorld expects the Supermarkets and Grocery Stores industry to total $102.3 billion in 2017-18.
Woolworths is estimated to account for approximately 37 per cent of the industry, with Coles at 30 per cent, ALDI at 9 per cent and smaller players such as IGA and Costco accounting for the balance.
