Coles drives Wesfarmers profit

Wesfarmers is optimistic about the year ahead after supermarket giant Coles helped it grow annual profit by six per cent to $2.26 billion. Resource-2

The company will also deliver $579 million to its shareholders via a 50 cent dividend, which will be paid in addition to its final dividend for the 2012/13 financial year of $1.03.

Coles and hardware chain Bunnings were the strongest contributors to Wesfarmers’ profit, but Target suffered a heavy fall in earnings, as did the company’s coal mining operations.

Overall profit growth was weaker than analysts had expected, and Wesfarmers shares were down 55 cents, or 1.3 per cent, at $41.3 at 1437 AEST.

The company predicts growth in its retail businesses in the 2013/14 financial year, despite highlighting “challenging conditions” for the Australian economy and households.

“We expect continuing growth from the group’s retail portfolio,” Richard Goyder, MD of Wesfarmers, said.

“Coles, Kmart and Officeworks have plans to build on the strong foundations established during their respective turnarounds, and the outlook for Bunnings is positive.

As Target executes its transformation we expect earnings to progressively recover, but this improvement will take time.”

Earnings from Coles of $1.5 billion were up 13.1 per cent from the previous year, due to stronger sales activity.

Bunnings earnings rose 7.5 per cent to $904 million.

Target suffered a 44 per cent fall in earnings to $136 million due to lower prices, excess stock and increased costs.

IG market analyst Evan Lucas said Target’s performance was a major concern for Wesfarmers.

“We did see a profit downgrade to the division in the middle of the year and a new management team installed.

“How effective they will be remains to be seen as global apparel players such as Zara, Top Shop, and H&M bite into the brand.”

Wesfarmers’ coal division is also a concern due to falling commodity prices, and questions about a possible sell-off may soon be raised, Lucas said.



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