Wesfarmers’ write-downs put dent in profits

Wesfarmers has posted a significant decline in its net profit after tax for the 2017-18 financial year, according to IBISWorld.

IBISWorld says the results clearly show the effects of impairment charges on its Target and Bunnings UK businesses. Revenue improved by three per cent, including an 8.9 per cent increase in sales at its Bunnings Australia business. But the company’s net profit after tax declined by a huge 58 per cent.

Wesfarmers’ Bunnings Australia, Officeworks and Kmart assets performed strongly and posted strong growth. But its Target, Bunnings UK and Coles Express stores all struggled.

Sales grew for the Coles supermarket business. But, according to IBISWorld, this growth will not be strong enough to outperform rivals Woolworths.

“The Coles brand has recently come under increased price competition from Woolworths and ALDI,” Senior Industry Analyst Andrew Ledovskikh said. “This has weakened sales growth and caused the company’s market share to decline over the past two years. Kaufland’s entry into the Australian market could potentially compound this trend.

“The company has also faced losses with the failure of its Bunnings UK rollout. Impairments from that business are negatively affecting the company’s net profits after tax. Meanwhile, the Target business continues to struggle to replicate the success of the Kmart department store business.”

IBISWorld says it expects the supermarkets and grocery stores industry to total $102.3 billion in 2017-18. It estimates Woolworths to account for about 37 per cent of the industry, with Coles at 30 per cent and ALDI at nine per cent. Smaller players such as IGA and Costco make up the rest.

Guy Russo to retire

In separate news, Guy Russo will retire as CEO of Wesfarmers’ Department Stores division and Managing Director of Target. He will remain as an advisor to Wesfarmers and the Department Stores division for the rest of the 2019 financial year.

Wesfarmers Managing Director Rob Scott said, “Guy leaves a valuable legacy that is reflected in the record profit result for the Department Stores division for the 2018 financial year. He has led a world-class turnaround of Kmart into one of Australia’s best product-development and retail companies.”

For his part, Mr Russo says he’s excited about the future of Kmart and Target.

“Both businesses are well-positioned in the retail sector and … will continue to provide affordable, quality products for our customers to enjoy,” he said.

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