Wesfarmers pleased with Coles

Published in the Adelaide Advertiser, February 2010 by Rebecca Le May

Wesfarmers is cautious about the outlook for the second half of 2009/10, after posting 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 previously.

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

Group revenue totalled $26.53 billion, up from $26.36 billion. Revenue from the Coles supermarket chain was $15.16 billion, compared with $14.62 billion previously.

Coles and hardware chain Bunnings together contributed more than half of the group’s earnings before interest and tax of $1.54 billion, which was down 10.9 per cent from $1.73 billion.

Coles’ EBIT was $486 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.

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,” Mr Goyder said.

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

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

“Our 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 rollouts either.”

Wealth Within investment analyst David Harvey said confidence in the economy was reasonably high, but there was a greater propensity for consumers to save rather than spend, which meant tighter margins for retailers over the coming year.

“Overall, the group has done well to maintain revenue and profits … in a difficult economic environment, plus managed to increase its fully franked dividend by 10 per cent to 55c,” Mr Harvey said.

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