Fired-up Coles delivers the goods for Wesfarmers
SUPERMARKET chain Coles continues to drive profits at Perth-based conglomerate Wesfarmers in the midst of a collapse in coal prices that has slashed earnings in its resources division and prolonged operational issues at retailer Target, which has suffered a large drop in profitability.
Wesfarmers yesterday posted a 9.3 per cent jump in half-year net profit to $1.285 billion as revenue from its portfolio of businesses, which are heavily weighted towards the supermarkets group Coles, rose 3.2 per cent to $30.6 billion.
Masking a 63 per cent drop in pre-tax earnings at Wesfarmers coal-dominated resources division was another strong performance from Coles, with the supermarket chain now accounting for 60 per cent of Wesfarmers revenue for the half and roughly 40 per cent of pre-tax earnings.
Coles recorded pre-tax earnings of $755 million, up 15.1 per cent. This was three times the rate of revenue growth. Return on capital increased 100 basis points to 9.2 per cent in the half.
Wesfarmers said that during the half, it recorded strong pre-tax earnings at its Coles, Bunnings and Kmart operations with a turnaround in the insurance division compensating for reduced earnings at Target and the resources division.
The company said it would pay an interim dividend of 77¢ per share, up from 70¢ paid for the same time last year, and remained cautiously optimistic for the group's second-half outlook despite continuing economic and market uncertainty which is expected to give rise to continued challenging conditions in the resources and industrial safety divisions.
"We expect growth from the group's retail businesses as we further improve customer offers and operating efficiencies, and strengthen all of our channels to market," managing director Richard Goyder said.
The half-year result was in line with analyst expectations of a half-year profit of around $1.2 billion, although the interim dividend was slightly ahead of some estimates with some analysts tipping a dividend of 75¢ per share.
The prospect of further gains in retail helped push Wesfarmers shares 1.2 per cent higher at $38.88.
Mr Goyder said he expected the company's retail portfolio to provide resilience and growth in an overall challenging consumer environment. However, its general merchandise business Target continued to suffer, with its earnings falling 20.4 per cent to $148 million.
Mr Goyder said new management at Target was working to improve the business with early initiatives showing some signs of repairing the group's performance. Its performance was in stark contrast to merchandise stablemate Kmart which again shot the lights out on its first-half result, with pre-tax earnings up 24.9 per cent to $246 million.
"The earnings growth achieved at Coles and Kmart was pleasing, reflecting the ongoing turnaround of these businesses and a strong customer response to their improving offers," Mr Goyder said.
"Higher costs associated with Target's transformation plan weighed on its earnings during the half.
"While trading results in the half provided encouragement for the divisions strategy, Target remains in the early phases of its transformation."
Hardware business Bunnings had interim pre-tax earnings of $518 million, up 6.8 per cent for the half.
The insurance division recorded earnings of $104 million, $87 million above the prior corresponding period, while its chemicals, energy and fertilisers division posted earnings of $104 million, up 5.1 per cent.