Coles Returns Top Profits for Wesfarmers, Latest Results

Wesfarmers has attributed its latest successful half-yearly results to a strategic emphasis on customer service, good value and improved product ranges in its Coles supermarkets and other retail stores.

The parent company of Coles today reported a net profit after tax of AUD$1.39 billion for the six months which ended 31 December 2015. This was an increase of 1.2 per cent on the same corresponding period in 2014.

Retail business portfolio success

Wesfarmers’ retail portfolio, which includes Coles, Bunnings Warehouse, Officeworks, Kmart and Target, largely drove the profit growth. The company’s industrials division did not perform as wel,l with Wesfarmers Managing Director Richard Goyder announcing a profit drop.

“Due largely to a substantial decline in revenue in the Resources business, and despite a continued strong focus on cost reduction, earnings across the Industrials division were AUD$158 million lower,” Goyder said.

Wesfarmers retail portfolio earned a profit (before interest and tax) of AUD$176 million, a 9.2 per cent increase on the same 2014 financial period. According to Goyder this was supported by good Christmas trading in all businesses.

“Investment in customer value, store network improvement and better merchandise offers and service drove increased earnings across the retail portfolio,” Goyder commented.

“Overall, return on capital for the retail portfolio improved strongly as a continuing focus on capital efficiency further leverage of the earnings growth recorded,” he said.

Coles winning formula

Earnings before interest and tax at Coles increased by 5.6 per cent on the previous 2014 period to a total of AUD$945 million.

“The good momentum in Coles’ food and liquor business continued during the half,” Goyder said.

“Food and liquor revenue grew AUD$937 million, driven by investing benefits from operational simplification and supply chain efficiencies into better value for customers and improvements in service, particularly over the Christmas period,” he said.

“Coles continued to make improvements in its fresh offer, resulting in increased transaction volumes and basket size,” Goyder stated.

“The transformation of Coles Liquor was further progressed with encouraging signs, and over the period included work on price investment, range simplification and store network optimisation. Despite lower fuel volumes and average fuel price, the convenience business produced a solid result, supported by strong growth in store sale,” he said.

Bunnings Warehouse

Bunnings’ earnings increased to AUD$701 million, an increase of 13.4 per cent when compared to the previous 2014 corresponding period. This result was described as “very strong” by Goyder.

“Bunnings’ results reflect the broad strength of its offer and solid execution of its strategic agenda,” Goyder said. He further flagged Wesfarmers’ recent acquisition of UK homewares chain Homebase as a long-term value-creation opportunity for Bunnings.

Officeworks booms

Officeworks earnt AUD$59 million, up 18 per cent on the corresponding 2014 period.

“Officeworks continued its good record of strong growth in earnings and return of capital,” Goyder commented.

Improvements in store layout and new merchandise were amongst factors attributed to its success within the financial period.

Kmart a winner

Kmart’s earnings grew 10.4 per cent on the previous corresponding 2014 period to AUD$319 million.

The discount retailer’s success was linked to focusing on range improvement, cost control and inventory management.

Target business is growing

Target’s earnings were AUD$74 million, a 5.7 per cent increase on the corresponding 2014 period.

“Customers transactions and unit volumes grew during the half as Target invested further in lowering prices for customers as part of its ‘first price, right price’ stagey, Goyder said.

Wesfarmers’ competitor Woolworths Limited is expected to reveal its results for the six months ended 31 December 2015 this Friday 26 February 2016.