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Kmart & Target Downgrade Profit After Catch Acquisition

Wesfarmers has downgraded profit forecasts for the Kmart Group just hours after splurging $230 million buying Catch, an acquisition it hopes will help it better compete online.

The company has blamed a competitive market, “cautious consumer sentiment”, and stock availability shortages for the drop in earnings before interest and tax, which are expected to fall by more than 10 per cent for the 2019 financial year.

Wesfarmers managing director Rob Scott said Kmart and Target will be increasing investment in online and “other digital initiatives”, possibly alluding to the recent acquisition of Catch Group.

Catch provides Wesfarmers an established and profitable business with a first-party and third-party marketplace it can use to compete with Amazon and Kogan.

The company also plans to use the existing Catch management team and assets to improve Wesfarmers online capabilities and fulfillment.

Kmart Group’s earnings before interest and tax reached $631 million in 2018, but are forecast between $515 million and $565 million this year.

The figures don’t include earnings from Kmart Tyre and Auto Service in the months before it was sold to German auto company Continental last August.

Mr Scott said Kmart’s customer offer and price leadership strategy has delivered strong returns over the long term and the group will continue investing in it.

It’s hoping to build an operation based on high stock availability and simplified supply chains to sell over a billion items and control more of its market.

The Group estimates its two department stores currently own about 11% of the “Home & Living” market in Australia, worth around $24 billion.

Kmart Group has been engaging in “continued optimisation” of its store networks to “support future growth”, which has led to a lack of stock on the shelves of some stores, but the issue is expected to be resolved by the end of the financial year.

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