Wesfarmers’ profit boost
WESFARMERS’ management remains wary of volatile economic conditions but says its full-year results are proof the trading environment is not as bad as some may think.
The Perth-based conglomerate more than quadrupled its full-year profit to $5.51 billion in a set of results that included $3.17 billion in post-tax gains from November’s spin-off of Coles, as well as the divestment of Bengalla, Kmart Tyre and Auto, and Quadrant Energy.
But it was a 13.5 per cent increase in profit from continuing operations, to $1.94 billion, that fuelled managing director Rob Scott’s rosy outlook.
Wesfarmers’ Bunnings Warehouse, Officeworks and chemicals divisions drove a 4.3 per cent increase in revenue from continuing operations to $27.9 billion — evidence of the benefits of a diverse portfolio, it said.
Mr Scott said it was wise to be cautious around the global outlook, but brushed off a disappointing performance by the company’s Kmart and Target stores to declare the local economy in relatively good shape.
“A lot of people like complaining about things but when you compare the Australian economy to other economies around the world, things aren’t too bad,” Mr Scott said yesterday.
The Reserve Bank has twice cut the cash rate in recent months in a bid to lift flagging household spending, which has been weighed down by continued wage stagnation, ongoing labour market slack, and a weak property market.
But Mr Scott said Bunnings had proved doubters wrong by weathering the east coast housing market downturn, with total sales at the hardware giant up 5.0 per cent to $13.2 billion during the year.
“Obviously there was some weakness in residential housing … But as we’ve highlighted over the years Bunnings’ product range is very diverse,” Mr Scott said. “People have overestimated the reliance Bunnings has on residential housing.”
Bunnings’ earnings increased 8.1 per cent to $1.63 billion on same-store sales growth of 3.9 per cent, with 17 new locations opened during the year including 10 replacement stores.
Mr Scott said Bunnings, which accounts for 57 per cent of Wesfarmers’ earnings, remains “well positioned for continued growth in FY20” despite an expected continuation of moderated trading conditions.
The news wasn’t as good for the company’s cut-price department stores, with earnings at the Kmart Group down 13.7 per cent to $540 million. Wesfarmers said Target’s trading results in particular highlighted the need for “ongoing repositioning” of the business.
“The opportunity we see is to better distinguish the offering from Target to Kmart … they were too similar, frankly,” Mr Scott said.
Total sales at Kmart were up 1.5 per cent but comparable sales were flat, with the womenswear result particularly poor and the brand’s planned exit from DVDs also weighing.
Mr Scott said Wesfarmers would also continue to pursue growth opportunities both inside and outside its current stable.