Wesfarmers H1 profit up 1% to $879m

Wesfarmers Ltd is cautious about its outlook for the remainder of the financial year
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 up 0.9 per
cent to $879 million, from $871 million for the previous corresponding period.
The result beat market expectations for a net profit of about $733 million and sent
Wesfarmers' shares to an intraday high of $31.18.
Wesfarmers shares closed up 95 cents, or 3.2 per cent, to $30.60.
The company said the result was driven by the strong performance of the retail
division, which offset an earnings plunge in the resources division due mainly to
lower coal prices.
Group revenue totalled $26.53 billion, up from $26.36 billion previously.
Revenue from the Coles supermarket chain rose to $15.16 billion, from $14.62 billion.
Coles and hardware chain Bunnings together contributed more than half the group's
earnings before interest and tax (EBIT) of $1.54 billion, which was down 10.9 per
cent from $1.73 billion in the previous corresponding period.
Coles' EBIT was up 12.8 per cent to $486 million and Bunnings' EBIT rose by 14.1 per
cent to $422 million.
Bunnings' strong result was driven by good merchandising and operational strategies,
Wesfarmers said in a statement.
Coles' performance reflected substantial work underway to turnaround the business,
it said.
Wesfarmers is almost midway into its five-year turnaround plan for Coles.
Wesfarmers 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," he told a media teleconference.
"We're seeing good volume growth and we're getting more customers as well."
However, Coles' market share was relatively flat, he said.
"Our comp (comparable) sales numbers for stores has been strong but we've 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."
Mr Goyder was cautious about the outlook for Wesfarmers' retail business because of
the threat of higher interest rates, which could dent consumer spending.
"(And) we're not going to have the benefit of that stimulus injection that we had
last year," he said, referring to federal government fiscal stimulus measures.
"I think we're expecting some impact on our discretionary businesses.
"Having said that, we're well placed to capitalise on an improving economy to pursue
growth and turnaround in our businesses."
Wealth Within Ltd investment analyst David Harvey said confidence in the Australian
economy was reasonably high but consumers were tending to save rather 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 55 cents (per share)," Mr Harvey said.
CMC Markets analyst David Taylor said the result "ticked quite a few boxes".
Mr Goyder said the group's first half result again demonstrated the benefits of a
diversified business model.
He said Wesfarmers' retail business was a mixed bag but he expected "pretty good"
continuing growth for the division.
"Generally, trading through January and February has been reasonable," he said.
Mr Goyder said the Kmart discount department store chain was on track to turnaround
but sales growth for clothing and homewares chain Target would be "challenging.
The group's net debt fell 58.9 per cent to $3.82 billion in the half year.