No re­lief for WA re­tail as Kmart’s star dims

The West Australian - - WEST BUSINESS - Sean Smith

Wes­farm­ers has called out WA as one of the coun­try’s tough­est re­tail mar­kets af­ter warn­ing that a slow­down at Kmart would eat into first-half prof­its.

The WA con­glom­er­ate’s hopes of a pick-up at its star dis­count de­part­ment chain evap­o­rated with weak sales over the key Christ­mas pe­riod that held Kmart to to­tal sales growth of just one per cent for the De­cem­ber half-year and sent com­pa­ra­ble sales down 0.6 per cent.

Without im­prove­ment in the sec­ond half, it puts Wes­farm­ers’ sec­ond-big­gest earner af­ter Bun­nings on track for its worst year of sales growth since 2014.

Wes­farm­ers said the slow­down would cut its com­bined first-half profit from Kmart and the Tar­get chain from $415 mil­lion a year ear­lier to be­tween $385 mil­lion and $400 mil­lion.

The profit warn­ing, which adds to a num­ber of dis­ap­point­ing post-Christ­mas trad­ing re­ports by listed re­tail­ers, sent Wes­farm­ers shares as much as 3.5 per cent lower as in­vestors fret­ted about the group’s ex­po­sure to the re­tail sec­tor.

How­ever, chief ex­ec­u­tive Rob Scott cau­tioned against ex­trap­o­lat­ing Kmart’s poor per­for­mance across Wes­farm­ers’ other re­tail busi­nesses.

“I don’t think it would be ap­pro­pri­ate to draw any broader con­clu­sions,” he said.

Over­all, he said, the Christ­mas trad­ing pe­riod was “broadly in line with our ex­pec­ta­tions”.

“It wasn’t a bad trad­ing pe­riod, it was a patchy and chal­leng­ing one. But we did find across our busi­nesses that when we had the of­fer right, we were able to gen­er­ate good sales.”

While Wes­farm­ers does not break down sales by State, Mr Scott con­firmed that the group’s re­tail busi­nesses had yet to see im­prove­ment in WA, de­spite the State’s eco­nomic pick-up.

WA, he said, re­mained “one of the more chal­leng­ing re­gions”, cit­ing slow pop­u­la­tion growth, higher house­hold bills and weak con­sumer con­fi­dence.

“Th­ese are not new is­sues, they’ve been there in WA for a while now.”

Kmart be­came the coun­try’s most suc­cess­ful de­part­ment store un­der for­mer McDon­ald’s Aus­tralia boss Guy Russo, who more than tripled its prof­its af­ter tak­ing on the un­der-per­former in 2008.

The first signs of trou­ble emerged at Wes­farm­ers’ an­nual meet­ing in Novem­ber when share­hold­ers were told of “mod­er­at­ing” sales growth at the chain.

Man­age­ment was prompted to up­date the mar­ket yes­ter­day af­ter sales wors­ened over Christ­mas, blam­ing weaker de­mand for Kmart’s wom­enswear and its exit from low-mar­gin DVDs which ac­counted for about one per cent of sales.

It also sug­gested that re­duced dis­count­ing had cost it sales.

The Kmart hit over­shad­owed a small im­prove­ment at its sta­ble­mate, Tar­get, which fin­ished the De­cem­ber half with a 0.2 per cent lift in head­line sales.

Wes­farm­ers’ first-half profit will be bol­stered by about $3.3 bil­lion of one-off gains from the spin-off of Coles and as­set sales.

Wes­farm­ers shares clawed back ground from a low of $30.82 to close 69¢ off at $31.26.

“It wasn’t a bad trad­ing pe­riod, it was a patchy and chal­leng­ing one. Rob Scott, Wes­farm­ers CEO

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