Kmart On The Up, Revenue Nears $10 Billion
Kmart Group has enjoyed a strong year, with revenue up 8.3 per cent to $9.98 billion, as parent Wesfarmers looks to grow Catch and carve out a new niche for Target.
The group – comprising Kmart, Target, and Catch – posted an EBITDA of $1.35 billion, 23.4 per cent up on the 2019-20 financial year, with earnings before significant items rising 80.7 per cent to $739 million.
This is despite COVID restrictions forcing temporary store closures during the financial year, including 38 Kmart stores and 32 Target stores in metropolitan Melbourne during the first half; lost sales were partially offset by higher digital penetration and a spike in demand following the stores’ reopening.
Rob Scott, managing director of Wesfarmers, says earnings growth at Kmart and Target was fuelled by higher sales, lower clearance costs, and improving cost of doing business.
“This was partially offset by higher operational costs associated with online fulfilment and ongoing investment in technology in Kmart.
“Kmart continued to invest in key strategic initiatives to enhance its customer offer, increase resilience and flexibility in its supply chain and support the development of data and digital assets and capabilities,” he said.
Kmart sales were up 12 per cent, with Target sales down 3.9 per cent. The Target conversion program was completed, with 31 large-format Target stores converted to Kmart stores and 55 Target Country stores to the K hub small format; additionally, 10 large-format Target stores and 48 Target Country locations were closed. Total stores across the Kmart and Target network now number 462, down from 522 a year earlier.
Ian Bailey, MD of Kmart Group, said moving forward Target would focus on simplifying its operating model.
“Target will continue to improve the product offer in destination categories while accelerating online growth.
“Target is expected to be a smaller but profitable business following the annualisation of the store closure and conversion program,” he said.
Catch saw its gross transaction value increase 41 per cent to $973 million, with both its retail and marketplace offerings enjoying strong growth as its customer base increased by 600,000 active users to 2.9 million.
The online retailer also moved to deeper integration with Wesfarmers, including launching click-and-collect service in more than 430 Kmart and Target stores, joining Flybuys, and adding Kmart products into its retail range.
According to Rob Scott, Catch’s earnings performance reflected increased investment in technology, marketing, and additional capabilities.
“Gross transaction value growth moderated in the second half, reflecting the rapid shift to online channels in the prior corresponding period.
“Catch’s earnings were impacted by investment in technology, marketing and fulfilment capacity to support long-term growth, as well as a number of enhancements to its subscription program,” he said.
Kmart Group’s outlook for the financial year ahead is less rosy, however, with COVID lockdowns already hitting combined Target and Kmart sales, which are down 14.3 per cent on the prior corresponding period.