Coles rebirth on track

Published in the Canberra Times, February 2010 by Rebecca Le May

Wesfarmers is cautious about the outlook for the second half of 2009/10, after giving a flat first half result, but says the turnaround of its Coles supermarket chain remains on track.

The diversified group’s net profit for the six months to December 31 was $879 million, up 0.9 per cent from $871 million in the previous corresponding period.

The profit was better than market expectations for a net profit of about $733 million.

Group revenue totalled $26.55 billion, up from $26.35 billion.

Revenue from the Coles supermarket chain was $15.15 billion, compared with $14.61 billion.

Coles and hardware chain Bunnings together contributed more than half of the group’s earnings before interest and tax of $1.55 billion, which was down 10.9 per cent from $1.75 billion.

Coles’ EBIT was $485 million, up 12.8 per cent, while Bunnings’s EBIT rose by 14.1 per cent to $422 million.

Bunnings’ strong result was driven by good merchandising and operational strategies, Wesfarmers said yesterday.

Coles’ performance reflected substantial work under way to turnaround the business.

Wesfarmers is almost mid-way into its five-year turnaround plan for Coles.

Group chief executive Richard Goyder said Coles’ performance was “very much in line with where we expected the business to be”.

“I think our numbers from Coles speak for themselves,” he said.

“We’re seeing good volume growth and we’re getting more customers as well.”

However, Coles’ market share was “relatively flat”.

“Our comp [comparable] sales numbers for stores has been strong but we’re actually in the half disposed of a number of stores,” Mr Goyder said.

“And we haven’t had at this point, in the [broader economic] correction, new store opening roll-outs either.”

He was cautious about the outlook for Wesfarmers’ retail business, because of the threat of higher interest rates, which could dent consumer spending.

“I think we’re expecting some impact on our discretionary businesses,” Mr Goyder said.

Wealth Within investment analyst David Harvey said confidence in the Australian economy was reasonably high but there was a greater propensity for consumers to save rather than spend.

That would mean tighter margins for retailers over the coming year, he said.

Mr Goyder said the group’s first-half result “demonstrates the benefits of a diversified business model”, given coal prices had hit its resources division hard. The division’s EBIT plunged to $2 million, from $664 million.

The group’s net debt fell 58.9 per cent to $3.82 billion in the half year.

Wesfarmers shares closed up 95c at $30.60 yesterday. The fully-franked dividend was increased by 10 per cent to 55c.

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