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Target Crashes, Kmart Up, Bunnings Wobbles, Officeworks On Track

Following the release of its latest Q1FY2018 earnings report, Wesfarmers Limited has notched further growth for Kmart and Officeworks, as Target continues to flounder, and hardware giant Bunnings feels the pressure of its overseas presence.

Wesfarmers’ Managing Director, Richard Goyder, has described the Group’s sales performance as “generally pleasing”, while specifically mentioning the continued strong performance of Bunnings ANZ, Kmart and Officeworks.

Whilst Bunnings ANZ notched sales growth of 11.5% (to $2.96 billion), Bunnings United Kingdom and Ireland (BUKI) saw a sales drop of 17.5% for the quarter (to $457 million).

Bunnings ANZ’s total store sales for the quarter jumped 11.7%, whilst store-on-store growth also increased 10.8%. Sales growth for Bunnings ANZ occurred across both the consumer and commercial markets, within all trading regions and across all merchandising categories.

Bunnings ANZ’s results follow a sales growth of 7.4% for the previous corresponding period, which notably included the “adverse impact” of wet weather, and stock liquidation activities associated with Woolworths’ owned Masters business.

During the quarter, two replacement warehouses were opened at former Masters sites in Dandenong (VIC) and Mt Gambier (South Australia). Queensland’s Compton Road warehouse closed for redevelopment.

In mid-October, Home Consortium confirmed completion of its acquisition of 100% of the shares in Hydrox Holdings – notably satisfying the remaining conditions with Bunnings, concerning agreements for lease on six former Masters locations. Wesfarmers anticipates these stores will be converted and opened as Bunnings stores by May 2018.

By the end of September 2017, a further 16 sites are said to be under construction.

The company states the underwhelming performance of BUKI is largely due to the persistence of “difficult trading conditions” for Homebase. The company has continued to roll out its Bunnings Warehouse pilot stores – eight pilot stores have engaged in trading during the quarter, which has delivered “encouraging results”.

Bunnings United Kingdom & Ireland’s total sales for the quarter dropped 13.8% compared to the previous corresponding period, whilst store-on-store sales also fell 11.9%.

Wesfarmers states BUKI will continue to trial a “range of formats, locations, and competitive environments to achieve proof of concept”.

As at September 2017, there were 244 Homebase stores and 8 Bunnings stores. The company states a further 15 – 20 Bunnings pilot stores are expected to be trading (or nearing completion) by the end of the year, subject to regulatory approvals.

Sales for Kmart during the quarter grew 9% (to $1.36 billion), which the company states is underpinned by “very strong performance” achieved in the prior corresponding period. Wesfarmers states customers have responded “positively” to investments in price and product ranges.

Kmart’s comparable store sales also increased 4.9%.

During the quarter Kmart finished 11 store refurbishments. opened two new stores and closed one store.

Kmart Managing Director, Ian Bailey, states of the results and the retailer’s future strategy:

“Maintaining price leadership in a market that is becoming increasingly competitive remains core to Kmart’s strategy and is expected to support the continued growth of the business”.

On the other hand, Target’s sales for the quarter fell 6.4% (to $604 million), amidst a continuing reset of its “product, price and range”. Comparable store sales also dropped 6.4%.

From the first quarter of 2017, Target has seen back-to-back decreases in quarterly retail sales growth  – 21.9% (Q1FY17), 15.6% (Q2FY17), 17.9% (Q3FY17), 3.2% (Q4FY17), 6.4% (Q1FY18).

Target CEO, Guy Russo, states the retailer has continued to deliver quality fashion at low prices, whilst merchandise disciplines have further progressed, in addition to SKU reductions and lower levels of inventory, coupled with increased levels of direct sourcing.

Officeworks’ total sales jumped 7.8% for the quarter, to $497 million. The company states it has “continued to execute strongly against its ‘every channel’ strategy, with positive sales growth achieved in stores and online”.

During the quarter Officeworks opened one new store.

Officeworks Managing Director, Mark Ward, states of the retailer’s future outlook:

‘Officeworks continues to invest in both its store network and online offer, both as stand-alone channels and as part of an every channel proposition”

“Officeworks remains focused on providing a compelling offer to customers, which is centred around being a one-stop shop for micro, small and medium-sized businesses, students and households”.

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