Wesfarmers shares hit as Target misses mark
The retail conglomerate said on Friday that Target's profits had been hit by a late start to winter, the clearing of excess stocks, shoplifting and restructuring costs.
The discount department store is now expected to report earnings before interest and tax for the 2013 financial year of between $140 million and $160 million, more than 40 per cent below the $244 million reported in the previous year.
"I don't think we would be particularly surprised that earnings are weak, but the size of the downgrade is probably a bit more than most of us were expecting," National Australia Bank analyst Michael Bush said.
"Target has been struggling for several years, partly a function of the broader consumer environment and some other Target-specific [issues]."
Wesfarmers shares closed 2.87 per cent lower at $42.93.
Managing director Richard Goyder said the earnings were "disappointing" but the retail chain would work on keeping Target competitive and maintaining its brand.
Target has performed poorly compared with its peers Kmart, which is also owned by Wesfarmers, and Big W and has battled excess inventory and soft consumer sentiment.
Last month, the head of operations at the Coles supermarkets chain, Stuart Machin, replaced Dene Rogers as Target's managing director. Mr Rogers resigned only 18 months after taking on the role.
The Target announcement also pushed other retail stocks lower. The Reject Shop slipped 3.3 per cent, JB Hi-Fi dropped 2.9 per cent and Woolworths shrank 0.9 per cent.
The profit downgrade came as Australian Pharmaceutical Industries (API) chief executive Stephen Roche said he could not see the retail sector improving for at least another two to three years.
API has turned its focus away from wholesale drug delivery to health and beauty through its Priceline retail business.
Mr Roche said at an American Chamber of Commerce lunch on Friday that he expected consumer sentiment to remain fragile.
"I can't see any systemic change in consumer behaviour for at least two to three years and the consequence of that is ... we've got to learn and be good at operating in a very subdued and weak consumer environment," he said.
Frequently Asked Questions about this Article…
Wesfarmers shares suffered their biggest fall in almost two years after the company sharply lowered Target's earnings forecast. The downgrade signalled weaker-than-expected performance at Target and knocked investor confidence, sending Wesfarmers down 2.87% to close at $42.93.
Wesfarmers said Target's profits were hit by a late start to winter, the need to clear excess inventory, increased shoplifting and one‑off restructuring costs — all factors that reduced expected earnings for the year.
Target is now expected to report earnings before interest and tax (EBIT) of between $140 million and $160 million for the 2013 financial year, more than 40% below the prior year's $244 million.
National Australia Bank analyst Michael Bush said the size of the downgrade was larger than many expected, while Wesfarmers managing director Richard Goyder called the results "disappointing" and said the company would work to keep Target competitive and maintain its brand.
The Target profit downgrade weighed on the wider retail sector: The Reject Shop fell about 3.3%, JB Hi‑Fi dropped 2.9% and Woolworths declined 0.9% following the news.
Yes. Stuart Machin, previously head of operations at Coles, replaced Dene Rogers as Target's managing director. Mr Rogers resigned after only 18 months in the role.
Australian Pharmaceutical Industries CEO Stephen Roche said he could not see the retail sector improving for at least another two to three years, warning that consumer sentiment is likely to remain fragile and that retailers will need to operate in a subdued environment.
Investors may want to monitor Target's upcoming earnings results (EBIT), inventory levels and any further management or restructuring updates, as well as broader indicators of consumer sentiment — all of which featured prominently in the downgrade and the sector commentary in the article.
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