Wesfarmers Full Year Result: WES lifts profits thanks to Bunnings & coal business

Wesfarmers (WES) posted a largely in-line with consensus 22.1% lift in annual profit (excluding significant items) to $2.73bn. The result was driven by a lift in earnings at its Bunnings stores and a return to profitability for its coal mining business, thanks to the surging price of the commodity. This helped offset softer earnings at its core Coles supermarkets and continued losses across its Target chain. Last year’s bottom line was held back by write-downs on its Target and coal units. 

 WES will be paying out a $1.20 per share final dividend on 28 September 2017. This is a solid lift on last year’s final payment and takes distributions for the year to $2.23, giving the group a 4.7% yield. 

 Coles – which accounts for almost 40% of profits – recorded a 13.5% slide in its underlying earnings. The result was held back as Australia’s second largest supermarket chain has invested heavily in improving services in-store and lowering grocery prices to better compete with strong competition (namely from Woolworths and Aldi). WES said ‘…the 2017 financial year marks the eighth consecutive year of Coles lowering prices for customers, with cumulative deflation of 8.2% recorded since the 2009 financial year’. Not including the ~$200m investment in price reductions, its food and liquor division recorded modest growth. 

 Target was the other brand to head backwards. Over the year the department store posted a loss of $10m after losing $195m a year earlier. Its performance in recent years has been held back by restructuring costs and costs associated with the planned relocation of its support office. Not including restructuring expenses, Target made $53m in EBIT and improved its margins. WES plans on opening five new stores, improving fashionability, quality of sales and reducing end-to-end costs. 

 Bunnings benefited from the collapse of Woolworths’ (WOW) owned Masters home improvement chain and posted a better than expected result. Underlying earnings rose by 10% to $1.33bn. Store sales grew by 8.9% and by 7.3% store-on-store (not including the opening of new stores). Department store Kmart produced another solid result above forecasts, lifting revenue by 7.5% to $5.6bn and underlying earnings by almost 18% to $553m. The department store enjoyed a lift in customer transactions and units sold over the year. WES opened 11 new Kmart stores and completed 33 major refurbishments. 

 Its coal mining business swung back to profitability with a $465m EBITDA after losing $164m a year earlier. It was mainly helped by surging coal prices over the year and managed to lift production by more than 10% despite weather disruptions and Cyclone Debbie in the 2H17. Even though its Industrials business (Chemicals, Energy and Fertilisers) went backwards, it was above many analyst expectations. 

 As is usually the case, WES did not provide specific guidance for the year ahead. 

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