Coles lags as Bunnings builds Wesfarmers

SUPERMARKET giant Coles has suffered its first earnings drop in nine years as it lags rival Woolworths but parent company Wesfarmers has lifted profits thanks to strong growth in its Bunnings hardware chain.

The earnings slip was the first for Coles since Wesfarmers bought the business in 2007.

Now Wesfarmers’ biggest earner, Coles brought in $ 1.6 billion in the year to June 30, 13.5 per cent less than the prior year as sales growth slowed and it invested more in lowering food prices.

Like- for- like food and liquor sales at Coles and Liquorland, a crucial measure of revenue growth, rose 1 per cent in 2017/ 18, a significant slowdown from the prior year’s 4.1 per cent growth.

Analysts were expecting a fall in earnings at Coles because of a recent multi- billion dollar spend by rival Woolworths on lower prices, which has seen its like- for- like food sales growth outpace that of Coles.

Coles managing director John Durkan said it had been an “unprecedented year” of competition, with all players investing heavily in lower prices and Aldi expanding.

“I would have expected a worse set of sales numbers than I’ve seen given the significant investment elsewhere,” he said. “These things take time, in terms of getting the growth back into the business, but we are putting the right things in place.”

He expects comparable sales growth to significantly improve at Coles in the second half of 2017/ 18 as recent price cuts pay off. Mr Durkan said his focus was on improving the quality of fresh produce while continuing to find savings to pour into lower prices and better service.

The performance of Bunnings and Kmart, plus a boost from higher coal prices for Wesfarmers’ mining operations, helped offset Coles’ weakness as Wesfarmers posted a record annual profit of $ 2.87 billion for 2016/ 17, up 22 per cent on a year ago.