Retail division rules the roost as Wesfarmers interim rises 9.3%
Wesfarmers on Thursday 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 weighted towards 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, which accounted 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.
Wesfarmers said 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 resources.
The company declared an interim dividend of 77¢ per share, up from 70¢ last time, and remained cautiously optimistic for the second half, despite economic uncertainty which is expected to give rise to 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 prospect of further gains in retail helped push Wesfarmers shares 1.2 per cent higher at $38.88.
Mr Goyder said he expected the retail portfolio to provide resilience 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.
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 contrast to 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.
"Higher costs associated with Target's transformation plan weighed on its earnings," Mr Goyder said. "While trading results in the half provided encouragement ... 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, up $87 million, while its chemicals, energy and fertilisers division posted earnings of $104 million, up 5.1 per cent.
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Wesfarmers reported a 9.3% jump in half-year net profit to $1.285 billion. The rise was driven mainly by strong performances at its retail businesses—especially supermarket chain Coles—while those gains offset heavy hits in the resources division caused by a collapse in coal prices and weaker results at Target.
Coles recorded pre-tax earnings of $755 million, up 15.1%, with return on capital rising 100 basis points to 9.2%. Coles accounted for around 60% of Wesfarmers' revenue for the half and roughly 40% of pre-tax earnings, so its strong performance is a major contributor to Wesfarmers' overall profit and investor returns.
The collapse in coal prices caused Wesfarmers' resources division—dominated by coal—to see a 63% drop in pre-tax earnings, significantly reducing the group's results in that segment for the half-year.
Wesfarmers declared an interim dividend of 77 cents per share, up from 70 cents in the previous interim period.
Following the positive retail-driven result, Wesfarmers shares rose 1.2% to $38.88 as investors responded to the prospect of further retail gains and strengthened customer offers.
Target's earnings fell 20.4% to $148 million, and the business is undergoing a transformation that has increased costs. New management is implementing early initiatives showing signs of repair, but Target remains in the early phases of its turnaround—something investors should watch for progress and continued cost impacts.
Kmart delivered strong results with pre-tax earnings up 24.9% to $246 million. Bunnings, the hardware business, had interim pre-tax earnings of $518 million, up 6.8%. The insurance division also turned around, recording earnings of $104 million (up $87 million).
Managing director Richard Goyder said the group expects growth from its retail businesses as it improves customer offers and operating efficiencies. However, Wesfarmers remained cautiously optimistic about the second half, noting economic uncertainty and challenging conditions expected in the resources and industrial safety divisions.
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