Wesfarmers has announced a net profit after tax of $1.535 billion – up 44 per cent – as their Coles turnaround gathers momentum.

The WA-based conglomerate, owner of the Bunnings and Coles Group stores as well as coal and fertiliser assets, said that their supermarket chain had met expectations with increasing customer numbers and basket growth.

Managing Director, Richard Goyder, believed the result was strong given the economic conditions that confronted the group throughout the year.

“At a time of continuing concern about the impact of the economic crisis on employment in Australia, I am very pleased that we have continued to invest in all of our businesses, in particular the retail operations, leading to the creation of more than 10,000 new jobs in the past year,” he said.

“We now have exceptional teams in place leading all of our businesses with clear strategies that underpin future growth plans. In particular, the improvement in Coles is very encouraging with its performance reflecting good customer response as we progress through the early stages of the five year turnaround plan.”

The Coles division (supermarkets, liquor, fuel and convenience), which had total operating revenue of $28.8 billion and underlying EBIT of $831 million for the year, saw the sales uptrend continue in the fourth quarter after promising signs were seen earlier in the year. Indeed, food and liquor comparable store sales growth rose to 7.3 per cent in the final quarter of the Financial Year – a far cry from the meagre 1.3 per cent realised in the first quarter. Since the weak first quarter, sales have recorded growth of 3.8 per cent, 6 per cent and 7.3 per cent. For the full-year, total food and liquor store sales growth was 6.2 per cent and comparable store sales growth was 4.6 per cent.

“The results were driven by strong customer response to an improved in-store offer, particularly on-shelf availability, in-store value, quality, and service,” Wesfarmers suggested.

A greater commitment to Australian products and the “Feed Your Family for Under $10” campaign were singled out as marketing initiatives that had a strong impact on customer numbers and basket growth.

The company said that the foundations for the five-year turnaround were still being built, with store refurbishments continuing.

Their store renewal pilot programme commenced, with customers introduced to 13 new store formats. Despite a “positive” response from customers, the retailer is yet to finalise its new store format for the future.

Outlook

“The current uncertain economic conditions are expected to continue,” Australia’s second largest supermarket chain advised in a statement. “Despite recent signs of improving consumer confidence, it remains subdued, affecting customer purchasing patterns, such as eating out less, cooking at home more and a strong focus on value. Coles intends to meet customer demand for value, to improve its fresh quality and housebrand ranges and improve service.”

“The five year business turnaround programme is still in its early stages and meaningful and sustainable change will take time. However, the Coles management team are focused on driving change at pace to ensure the turnaround is achieved.”

Woolworths comparison

Woolworths continues to outstrip the sales growth rate of Coles, but the gap narrowed significantly throughout the most recent financial year.

The market leader recorded comparable stores sales in the four quarters of 6%, 7.1%, 8.8% and 7.9%, which – when compared to Coles’ 1.3%, 3.8%, 6% and 7.3% – suggests Coles is finding its feet under new management.

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