Wesfarmers considers offloading Officeworks
Coles earnings for the half year have slipped 2.6 per cent to $920 million as its sales growth slows further amid heavy grocery discounting led by Woolworths.
Food and liquor comparable sales, which strips out one-off events, rose 1.3 per cent in the six months to December 31, much slower than the 4.3 per cent growth recorded in the same period a year ago.
Coles’ results were unveiled by parent company Wesfamers on Wednesday along with strong performances from the group’s other retailers, Bunnings, Kmart and Officeworks which helped lift the conglomerate’s total half-year profit by 13.2 per cent to $1.58 billion.
Surprisingly, Wesfarmers said it’s considering spinning off its Officeworks business and is evaluating options to monetise its value, including through an initial public offer.
“Since Wesfarmers acquired Officeworks in 2007, the business has successfully executed a turnaround plan, more than doubling its earnings and improving its return on capital from 5.7 per cent in the 2009 financial year to 13.9 per cent in the current period,” said Richard Goyder, the conglomerate’s outgoing MD.
“Officeworks is well positioned for future growth with a strong competitive position and ongoing initiatives to grow its addressable market.”
Wesfarmers said the business will be retained if “divestment options do not its valuation hurdles”.
Goyder said Coles earnings have been hit by lowering grocery prices amid intense competition and the pressure of higher meat costs.
“Coles’ decline in earnings was driven by lower margins following increased investments in value, which were weighted towards the second quarter, including through the absorption of cost price increases in meat,” Mr Goyder said in a statement to the ASX on Wednesday.
“Costs of doing business were well managed, partially offsetting lower gross margins.”
Coles sales’ slowdown may be a sign arch-rival Woolworths’ aggressive price cuts has helped it wrest back customers.
Meanwhile, Wesfarmers’ home improvement division improved earnings three per cent to $722 million.
The division includes the Bunnings hardware chain, which grew earnings 9.8 per cent in Australia and New to $770 million, while the new UK venture reported a loss of STG28m ($A45 m) on revenue of STG612m ($A994 m).
Discount department store Kmart’s earnings increased 16.3 per cent to $371 million.
Officeworks’ earnings rose 5.1 per cent to $62 million, while Target continued to struggle with earnings tumbling 78.4 per cent to $16 million.
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