Wesfarmers 2016 profit drop but Coles remains strong

Posted by AFN Staff Writers on 24th August 2016
Coal

Parent company of Coles supermarkets, Wesfarmers, has announced its 2016 financial year results.

For the 12 months ended 30 June 2016, Wesfarmers achieved a net profit of AUD $407 million, a fall of 83 per cent on  its 2015 financial year when the group achieved a AUD $2.44 billion net profit.

The fall in profits has mostly been attributed to significant writedowns largely due to the Target department chain and Wesfarmers coal investments.

Overall its Coles supermarkets performed well, generating earnings of AUD $1.86 billion, a 4.3 per cent increase on 2015 financial year results.

Reflecting on the results, Managing Director of Wesfarmers, Ricard Goyder, said in a video address that throughout the financial year all of its retail businesses, except for Target, performed strongly.

“It’s difficult in the resources sector at the moment, for both our industrial safety division and resources business and certainly we are having some difficult times at Target,” Goyder said.

“The shareholders know we made impairments in both Target and our coal mining businesses which reflect the trading conditions in these businesses,” Goyder stated.

Coles

Outside the Coles earnings increase, the supermarket also increased its revenue by 2.7 per cent when compared to its 2015 financial year.

Wesfarmers reported that it has been investing in lowering Coles prices with nearly 1, 000 products added to its ‘every day’ low pricing scheme in June and July. As of the 30 June 2016, there were 3, 100 ‘every day’ priced items.

The supermarket invested in:

  • Improving its fresh produce offering
  • Staff training to help improve customer service
  • Expanding its online shopping service, opening its first store not open to customers, just used for servicing online shopping orders, in Victoria in April 2016.

“Coles has performed well in a very competitive market,” Goyder said.

“We’ve had increased sales and comparative sales. We’ve got strong customer numbers and we are delivering greater value and better value for our customers,” he stated.

Looking towards the future, Wesfarmers said competition for Coles will be “robust” and it will be customer-led in everything it does, including investing in prices, customer service and freshness.

Liquor including Liquorland and First Choice

The group said that it was continuing with its ‘liquor transformation plans’ and that 30 under performing stores were closed across the financial year.

More than 180 Liquorland sites underwent store renewals across the financial year and 200 more are slated for renewal in the 2017 financial year.

Wesfarmers reported it will continue to invest in value and range simplification in the future.

Convenience

Wesfarmers reported that its convenience shop sales growth remains strong,  with strong growth in its ‘food-to-go’ offerings underpinned by new sandwich and bakery ranges.

Approximately 30 new convenience sites were opened during the financial year and 28 upgraded.

Petrol volumes declined across the year with its headline volumes down 4.4. per cent and comparable volumes down 7.9 per cent when compared to its prior 2015 financial year.

Moving forward, Coles said it is currently testing its new ‘Big Yum at Little Coles’ convenience format.

Bunnings Warehouse

In a year which saw its competitor Woolworths announce it would divest itself of its Masters and home hardware chains, Bunnings stores in Australia and New Zealand achieved strong sales growth.

The Australia/New Zealand arm of the chain achieved earnings before interest and tax of AUD $1.2 billion, an increase of 11.6 per cent on the previous year.

Bunnings total store sales growth was 11.1 per cent when its 2015 financial year results and 8.1 per cent rise in store-on-store growth.

Wesfarmers reported that its repositioning of its recently acquired UK hardware chain, Homebase, was well underway and that trading was steady across its first four months of ownership.

“Bunnings had another really strong year in Australia and New Zealand,” Goyder said.

“Through the year, the performance of Bunnings in terms of customer numbers, the value and range we’re giving customers, the innovation of the business has been exceptional,” Goyder said.

Target, K-mart

For its 2016 financial year, Target experienced an operating loss of AUD $195 million.

“The disappointing aspect in our retail sector last year was Target,” Goyder said.

“We had slowing sales growth and a poor performance,” he stated.

However, Goyder said the K-mart chain had another great year.

“Strong sales growth, strong profit improvement and more customers really understanding what a great store it is,” Goyder stated.