Wesfarmers boss Richard Goyder.WESFARMERS says it is “generally optimistic in its outlook” and its flagship retail arm is well positioned, as its half-year retail earnings grow while coal, chemicals and fertilisers earnings slide.
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After surging to multiyear highs on Wednesday, shares on Thursday fell by 1.9 per cent in early trade to $45.03 on news Wesfarmers reported a December-half net profit fall of 3.7 per cent to $1.376 billion, in line with market forecasts.

But net profit from continuing operations rose by 8.3 per cent and total revenue grew by 0.4 per cent to $31.97 billion. Group earnings before interest and tax rose by 5.9 per cent to $2.1 billion.

The Western Australian company owns retailers – supermarket Coles, hardware chain Bunnings, office supply business Officeworks, and discounters Kmart and Target – plus businesses in resources, chemicals, energy and fertiliers, and industrial safety.

Deutsche Bank said while the result was largely in line with its expectations, Coles food and liquor was weaker than it expected and Bunnings was “also disappointing.”

“The read through for Woolworths is difficult but the slowdown in Coles’ total sales growth does not suggest Woolworths lost substantial market share,” analyst Michael Simotas said.

Resources was hard hit by the slide in coal prices, posting a 40.7 per cent annual slide in earnings before interest to $35 million, and chief executive Richard Goyder said “at current commodity prices the external trading environment is expected to remain challenging.”

“As the domestic economy transitions from a period of reliance on high levels of resource investment, the group is generally optimistic in its outlook,” Mr Richard Goyder said.

“The group’s portfolio of retail businesses positioned well in an environment where, notwithstanding low interest rates and recent declines in fuel prices, consumers continue to manage house hold budgets carefully.

“Wesfarmers will continue to actively develop and manage its portfolio of businesses, maintaining a strong balance sheet in order to take advantage of opportunities, should they arise, to support the delivery of satisfactory long-term returns.”

Coles posted a 7.1 per cent increase in year-on-year earnings before interest and tax for the first half, to $895 million, with food and liquor revenue up 5.3 per cent to $15.56 billion. For the December quarter, food and liquor sales increased by 4.9 per cent to $8.5 billion, with same-store sales up 4 per cent – the latter result in line with this week’s Morgan Stanley forecasts.

“Food and liquor price deflation was 0.7 per cent for the first half and 0.9 per cent in the second quarter,” Wesfarmers said. “Ongoing improvements in productivity and operational efficiencies funded greater investment in lower selling prices, driving increased customer transactions, volume, average basket size and sales density.”

Costs associated with its legal battle with the competition regulator – in which Coles agreed in December to pay $10 million in penalties after admitting to 15 instances of unconscionable conduct against eight suppliers – were “offset by lower electricity costs and a one-off increase in other income.”

Concerns about growth in the supermarket sector were raised when Bureau of Statistics figures showed supermarket and grocery store sales grew by just 3.7 per cent in the key month of December, seasonally adjusted, from 7.2 per cent growth in November.

The Coles Liquor business, the subject of some consternation among analysts as it battles market leader Dan Murphy’s, had a “challenging first half”.

Revenue at Coles Express fell by 6 per cent year on year to $3.9 billion, due to falling fuel volumes and an undertaking to the Australian Competition and Consumer Commission that it would limit discounts on fuel linked to supermarket purchases to 4¢ a litre.

Hardware chain Bunnings, meanwhile, reported a 10 per cent lift in first-half earnings before interest and tax to $618 milllion, as same-store sales increased by 9.1 per cent.

“Twenty new Bunnings Warehouse stores are expected to open in the 2015 financial year, with similar numbers forecast for the following year. Investment in the network and business infrastructure will be complemented by a continued focus on efficient capital management to maintain return on capital levels.”

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