THE DAILY CHART: Coles price still hangs over Wesfarmers

Wesfarmers has booked a full-year profit of $1.57 billion, up from $1.52 billion last year. While the result missed expectations of $1.59 billion, the Western Australian conglomerate is expected to have a headline profit number to match its rival Woolworths by 2012 of about $2.5 billion. When Wesfarmers acquired Coles in 2007 for over $20 billion, the retailer was in deep trouble. The fact that Wesfarmers has steered the retailer back to superior sales growth numbers to its senior rival – at least for the moment – without breaking its headline profit number is an admirable result. But it's not the whole story.

Wesfarmers famously purchased Coles at the top of the market, and probably paid too much for it. That left it with a less-than-appealing balance sheet and forced the company to tap its shareholders for cash several times for a total of $7.1 billion. As Eureka Report editor James Frost points out, you will find an indelible mark left on the company's earnings per share (EPS) projections from those capital raisings. While Woolworths' EPS are expected to increase over 80 per cent between 2007 and 2012, Wesfarmers' are only expected to break even. Some of that can be put down to the company's coal division, which should rebound in the near term, but a lot has to do with the fact that Wesfarmers' profits have more mouths to feed.

For more on Wesfarmers' Coles acquisition, Stephen Bartholomeusz says the Wesfarmers chief executive Richard Goyder will be increasingly confident that the Coles acquisition will pay off big in the longer-term.