Australian retail giant Wesfarmers has once again drawn on its powerhouse banner groups such as Coles supermarkets, Bunnings, Officeworks and Kmart, to deliver an 11.2 per cent jump in half-year profit.
The A$1.4 billion ($1.3 billion) profit exceeded analyst expectations, with group revenue of A$31.9b, up 4 per cent, also overshooting the hopes of investors.
But while Wesfarmers, which is celebrating its 100th year in 2014, has seen its December half earnings power ahead courtesy of key retail stores, its struggling Target business was once again a drag on profit, with insurance also weaker and earnings for its often volatile resources division swinging to a large slide in pre-tax earnings.
Wesfarmers, which released its half-year results this morning, said earnings before interest and tax rose 5.4 per cent to A$2.15b, with earnings per share 11.5 per cent better at A$1.24 per share.
Return on shareholders funds, which had been dented by the decision to buy the Coles supermarket chain in 2007 for A$19b, was up to 9.4 per cent from 6.8 per cent.
Across its retail divisions, which now form the bulk of Wesfarmers' revenues and profits, the company said Coles maintained its trajectory of strong earnings growth and an increased return on capital.
Cole, Target, Kmart and Bunnings
The Coles supermarket business - which on Tuesday night announced boss Ian McLeod would soon leave to take up a commercial advisory role with the Wesfarmers group - reported a 10.7 per cent increase in ebit (eanings before interest and tax) to A$836 million.
Return on capital for Coles rose to 10 per cent from 9.2 per cent.
The supermarkets' food and liquor division saw ebit jump 11.5 per cent to A$755m. Ebit margin actually fell slightly to 1.9 per cent from 2 per cent.
Kmart continued to shine despite the tough retail environment and skittish consumer confidence, with EBIT for the division up 5.7 per cent to A$260m.
But for Target, the cost of its restructure and shake-up to better perform in the trading landscape, as well as intense competition and problems around seasonal launches, saw ebit fall by more than half, or 52.7 per cent, to A$70m.
The powerhouse hardware big-box group Bunnings is not showing any signs of hurting from the roll out of a rival hardware banner group by Woolworths, with the chain reporting an 8.5 per cent rise in ebit to A$562m.
Return on capital for the hardware division rose to 27.6 per cent from 25.5 per cent.
Insurance, resources and industrial and safety
The non-retail divisions dragged down Wesfarmers' first half earnings. Insurance, which recorded a strong increase in underlying underwriting earnings, saw its results crunched by a A$45m Christchurch earthquake reserve increase. Insurance earnings slipped 4.8 per cent to A$99m.
Its resources division booked a 36.6 per cent dive in earnings to A$59m as lower export coal prices resulted in a significant decline in export revenue.
Its industrial & safety division reported a 17 per cent fall in pre-tax earnings to A$73m.
Wesfarmers boss Richard Goyder said the conglomerate would seek to strengthen its existing businesses, secure new growth opportunities and renew and redevelop its sprawling portfolio of businesses to drive shareholder returns.
He said a new management team at struggling merchandise chain Target would implement a strategic plan to turn around its performance, with the retail group's earnings in the second half expected to be better than the same period last year.
However, trading would remain ''challenging'' as Target underwent significant change in order to achieve long-term and sustainable growth.
Wesfarmers would invest further in its online retail sites, with online activity from across its businesses generating A$1.1b in sales for calendar 2013.
The company declared a half year dividend of 85 cents per share, payable on April 2, and up against the payout of 77 cents for the same time lat year.
- Sydney Morning Herald