No relief for WA retail as Kmart’s star dims
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