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Consumers Set To Gravitate To Cheap Deals: Wesfarmers Boss

Wesfarmers has cut its dividend by 9 per cent, reporting a 12.7 per cent slide in its interim profit to $1.213 billion, during what it says “was the most disrupted period since the onset of the pandemic.”

Shares have fallen over 6 per cent today.

The Group, who owns Kmart, Target, Officeworks, Catch, and Bunnings reported a revenue drop of 0.1 per cent, to $17.76 billion, during the first half of FY22.

Net profit (excluding significant items) was hit hard, dropping 14.2 per cent for the six months to December.

Even Bunnings earnings dropped 1.3 per cent, to $1.32 billion. This drop was offset by the company’s property earnings – without these, it actually would have post a 4.3 per cent drop. Bunnings revenue rose 1.7 per cent, to $9.21 billion.

Kmart Group’s sales fell 9.6 per cent to $4.92 billion, while earnings fell a whopping 63.4 per cent.

Combined Kmart and Target earnings declined 55.8 per cent to $222 million for the half, a victim of mandated shutdowns which saw both stores lose a quarter of trading days.

Revenue for Officeworks increased 3.7 per cent for the half to $1,580 million, while earnings declined 18.0 per cent to
$82 million.

CEO Rob Scott credits “continued strong demand in technology and furniture,” for the increases, but notes that earnings were impacted by “elevated volumes of online orders needing to be picked and packed from stores during lockdowns,” as well as “inefficiencies associated with the transition to a new customer fulfilment centre in Victoria.”

Luckily for Wesfarmers, its chemicals division WesCEF saw increased revenue of 29.8 per cent, to $1,077 million, with earnings up 36.3 per cent, to $218 million.

Closed doors hit profits

As is to be expected, it was the forced store closures, and increased COVID-related costs that crippled the Group.

“The Group continued to provide paid pandemic leave to team members and continued to pay all permanent and many casual team members through periods of prolonged lockdown, even where there was no meaningful work for them, and when they were required to isolate.”

These payments totalled approximately $37 million, which hit the company’s bottom line, despite providing “much needed certainty to team members and their families”.

In addition, costs of $43 million were associated with additional cleaning, security and protective equipment.

Wesfarmers estimated 34,000 store trading days were lost across NSW, Vic, the ACT, and NZ. At certain points, half the Group’s retail stores were either restricted or closed.

Budget-conscious shoppers

Looking to the near future, Scott expects that the current inflation pressure will lead to changing customer behaviour, which will suit the Group’s approach.

“Something that we expect is that customers will become more focused on price as they try and balance household budgets,” he says.

“The last few years have been quite remarkable that price hasn’t been as strong a factor in customer decision-making, especially with relatively high levels of household savings, inability to travel, the scarcity of product and the restrictions on trading.

“But I think going forward in the years ahead, we’re going to see price become far more important.”

He claimed that the way in which competitors deal with rising costs, is often to pass this onto the customer, Scott said.

“We take the opposite approach. We say: ‘How can we further differentiate on price?’

“We do operate in a competitive market and in times when customers are more focused on price and working harder to balance their budgets, we want to be there to help them. And our scale and unique merchandising capabilities gives us the opportunity to mitigate costs in ways that others may find more difficult.”

“We’re seeing raw material costs increase in timber, steel, aluminium, cotton. We’re also seeing significant increases in international shipping rates, and we’re seeing some labour cost pressures as well,” he said.

“But we actually see this as an opportunity because our businesses, by virtue of our scale and our unique merchandising model, makes us really well-positioned to minimise the impact of these cost pressures and to keep our prices really low.”

Mr Scott said the company planned to absorb price rises where it can, and roll out new, cheaper product ranges, particularly for Kmart and Target, to provide a “good range of products at the value end”.



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