Bunnings star performer in 1.2% boost in Wesfarmers first-half profit

ASX-listed conglomerate Wesfarmers, which owns the Coles supermarket, Bunnings hardware, Kmart and Target department store brands, lifted first-half profit 1.2%, led by strong growth in Bunnings and weighed down by low commodity prices affecting its industrial resources division.

Net profit was $A1.4 billion in the six months ended December 31, compared to $A1.37 billion a year earlier, while the retail portfolio had a 9.2% boost in earnings before interest and tax to $A176 million following good Christmas season trading in all businesses, the company said. Revenue rose 4.7% to $A33.5 billion despite stiff competition in the supermarket sector from Woolworths and Aldi impacting Coles, its largest business.

Wesfarmers increased its interim dividend 2Ac to 91Ac cents, payable on April 7, a 22% increase on a year ago. The record date is March 2.

Managing director Richard Goyder said a strong performance from the retail portfolio supported continued earnings growth while low commodity prices provided a significant headwind for its resources business.

"Investment in customer value, store network improvement, and better merchandise offers and service drove increased earnings across the portfolio," he said.

Earnings across the industrials division dropped $A158 million to $A22 million, with the resources business impacted by lower export coal prices and $A70 million of currency hedge book losses.

The best performer was its home improvement and office supplies division, which increased earnings by 13% to $A701 million on revenue growth of 10%. That division is predominantly Bunnings, the dominant player in Australia, which now has 50 stores and trade centres in New Zealand compared to 289 in Australia and a further 18 under construction.

Mr Goyder said Bunnings had a sales uplift in both consumer and commercial areas. He said while changes in the competitive environment may result in short-term volatility in trading margins, the hardware chain's longer-term outlook remained positive.

The group has agreed to buy Homebase, the second largest home improvement and garden retailer in the UK and Ireland, for £340 million. The chain is likely to be rebranded as Bunnings and Goyder said the deal is expected to complement the strong growth trajectory of Bunnings in Australia and New Zealand.

Rival Woolworths has thrown in the towel on its struggling home improvement business, which includes the Masters home improvement and Home Timber & hardware chains.

The Kmart department chain, which has 18 stores in New Zealand and 178 stores and 249 centres Australia, bumped up earnings 10% to $A319 million on revenue growth of 13%.

Wesfarmers is restructuring its department store business, with Kmart's current managing director, Guy Russo, becoming chief executive of a new department store division overseeing both Kmart and Target. The group expects to streamline functions across the two following considerable restructuring of both brands in recent years.

Ebit for the Coles supermarket chain was up 5.6% to $A945 million for the half, with revenue growing 3.1% mainly from a rise in food and liquor sales.

Mr Goyder said the group, except for mining and resources-related areas, remains generally optimistic on the outlook.

"The group's retail businesses have good sales momentum and are well positioned in an environment where consumers are expected to remain value-conscious and manage household budgets carefully," he said.

The ASX-listed shares last traded at $A43.62, and have gained 5.4% so far this year.

(BusinessDesk)