Stock in Wesfarmers Ltd [ASX:WES] rose 3.8% today at the time of writing to $42.31, despite revelations that its bottom line net profit had dropped 86.6% to $212 million in the December half.
Losses of $165 million from Wesfarmers Bunnings UK and Ireland concerns contributed to the result, along with a 14.1% drop in profits from Coles. Strong returns from Bunnings Australia and New Zealand and Officeworks could not offset the losses, leading to a shortfall of $1.6 billion below expectations.
EBIT (earnings before interest and tax) for Bunnings Australia and New Zealand was up 12.2% to $864 million, helped by the opening of 11 new stores and trade centres.
Total store sales were up 8.8% for the December quarter. But Wesfarmers Bunning’s UK and Ireland recorded a 15.5% drop in sales, leading losses to blow out from $48 million to $165 million.
Meanwhile, earnings from Coles fell 14.1% to $790 million, with sales down 0.4% to $19.9 million.
What about Target and Officeworks?
Target managed to improve its earnings through better supply chain efficiencies, despite a fall in sales, while Kmart’s sales grew 8.6%. Kmart’s reduced prices contributed to the higher volume of sales, with consumer’s buying more items per basket.
Officeworks wrapped up Wesfarmers strong Australian-led results, with earnings up 9.7% to $68 million. Sales also rose to $1.02 billion, with growth of 11.8% in the December quarter.
Officeworks looks set to continue its strong performance on the back of good trading during the back-to-school period.
What caused the rise?
Higher coal prices boosted Wesfarmers industrial earnings, with a rise of 51.4% to $209 million. Wesfarmers also expect a windfall of $100 million for the sale of the Curragh coal mine. Speaking on the deal, Wesfarmer’s Managing director Rob Scott said:
‘In December 2017, the Group announced an agreement to sell the Curragh coal mine for $700 million, which also includes a value share mechanism1 that allows Wesfarmers to participate in possible future coal price increases. On successful completion of the transaction, which is subject to a number of conditions precedent, the Group expects to record a post-tax profit on sale of approximately $100 million’.
Mr Scott also said the Group would offer an interim dividend $1.03 per share.
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Editor, Markets & Money