Bunnings rides Kiwi renovation wave

Bunnings, the home-improvement retailer, is opening a further five stores in New Zealand as it benefits from an uplift in housing construction and renovation, particularly in Auckland.

The retailer, which has stores in Australia and New Zealand, is part of ASX-listed Wesfarmers whose other retail brands include Coles supermarkets and the Kmart and Target department store chains.

Bunnings was the best performer in the group for the first-half ending December 31, increasing earnings by 13% to $A701 million as revenue rose about 11% to $A5.5 billion. That means the stores in Australia and New Zealand accounted for 16% of group revenue and one-third of profit.

Bunnings NZ general manager Jacqui Coombes said the New Zealand unit, which set up in this country in 2002,  has quadrupled turnover to $898 million for the 2015 financial year.

Wesfarmers doesn't break out New Zealand operations in its first-half results but Ms Coombes said she was happy with progress across all markets.

Bunnings has 50 stores in New Zealand, including 25 warehouse stores, 19 smaller format ones, and six trade centres that supply heavier construction materials.

Coombes said the company didn't have a target number of stores to hit in New Zealand but still sees plenty of opportunity for more growth despite strong competition from rivals cooperative Mitre 10 and Fletcher Building-owned Placemakers.

"Competition stops us being complacent," she said.

Bunnings is relocating a Taupo store to a bigger site and opening new stores in Petone and Naenae in Wellington by the end of the second half in July, opening stores in Grey Lynn and Westgate in Auckland in the first half of the 2017 financial year, and one store in south Hamilton in the Waikato by early next year. It opened none in the first half.

The New Zealand stores were hit by strike action last year by First Union members over roster changes that mean workers' shifts can be changed with only minimal notice.

Coombes said only 14% of the workforce was on the collective contract and it is having discussions with the union on settling the issue.

The hardware chain offered staff a 4% pay rise this year and a further 2% increase next year in return for more flexibility on rosters. Staff are also offered Wesfarmers shares after 12 months' service.

They weren't in the money after the conglomerate yesterday announced a 1.2% rise in first-half net profit of $A4.2 billion and revenue up 4.7% to $A33.5 billion, which saw the share price drop on the ASX from $A41.50 to $A40.30 currently.

Wesfarmers is buying Homebase, the second-largest home improvement and garden retailer in the UK and Ireland for £340 million. 

The chain is likely to be rebranded Bunnings UK, with Wesfarmers planning to initially rebrand three to five Homebase stores and see how it goes.

In the Australian market, Woolworths has said it will sell or wind down its struggling home improvement business, Masters.

First NZ Capital analysts said any likely negative effect of a decline in the housing cycle in the 2017 financial year may become a non-event in terms of the impact on home improvement if Masters closes.

As well as good management, the Bunnings chain was benefiting from a significant housing tailwind, providing a buffer to the impact of rising cost of goods, it said.

Wesfarmers has identified 15 sites of Masters' 100 Australian stores that it would be interested in taking over for its own operations.

Bunnings managing director John Gillam said the chain would continue to extend its brand reach physically and digitally, and it expects to open more than 30 new stores in Australia and New Zealand in the next two financial years. At the end of the first half, the chain had a total of 339 stores.

(BusinessDesk)