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Wesfarmers Plans A$579 Million Capital Return on Profit Gain

Aug. 15 (Bloomberg) -- Wesfarmers Ltd., Australia’s largest employer, announced a A$579 million ($531 million) capital return to shareholders as profit rose 6 percent amid a supermarket discounting contest with Woolworths Ltd.

Net income rose to A$2.26 billion in the 12 months through June from A$2.13 billion a year earlier, the country’s second-largest retailer said in a regulatory statement. That was in line with the A$2.27 billion average of eight analyst estimates compiled by Bloomberg. The shares fell.

Wesfarmers has cut prices on staples including bread and milk as it tries to bring customers to its Coles supermarkets. That’s not averted threats from the slowing of Australia’s mining boom, with earnings from its coal mining unit falling 66 percent as commodity prices fall and dropping 44 percent at the Target department store chain amid weak consumer spending.

“The falling dollar implies higher petrol prices. That’s a big part of people’s household expenditure and that could impact people’s discretionary spending,” Richard Goyder, managing director, told a media call after the results. “These are challenging conditions for Target.”

Australia’s currency has dropped 12 percent this year amidst a slowing of commodities investment that helped the economy skirt recession in the wake of the 2008 financial crisis. That drove gasoline prices in Sydney to a five-year high July 28.

The Perth-based company that owns mines, chemical companies, an investment bank venture and retailers will make a capital return of 50 cents per share, representing 1.2 percent of its stock, it said in a regulatory statement.

Wesfarmers fell 1.6 percent, its biggest drop in six weeks, to close at A$41.26 in Sydney. The stock has climbed 12 percent this year, ahead of the 11 percent gain in the benchmark S&P/ASX 200 index.

Australian retail sales were little changed in June as consumers spent less on books, clothing and footwear, the Bureau of Statistics said Aug. 5, falling short of the 0.4 percent gain forecast in a Bloomberg News survey of 21 economists.

At the same time, an index of consumer confidence has returned a positive reading for nine out of 10 months since October 2012.

Full-year revenue for Wesfarmers was A$59.83 billion, up 3 percent from a year earlier, while earnings before interest and tax climbed 3.1 percent to A$3.66 billion.

Sales for the Coles supermarkets division, which accounts for nearly 60 percent of revenue, climbed 5.5 percent to A$28.13 billion and increased 4.5 percent in stores open at least 12 months.

Woolworths, the country’s biggest supermarket chain, said July 30 that full-year food and liquor sales increased 6.6 percent to A$40.03 billion, and 2.7 percent in stores open at least 12 months.

Wesfarmers has refurbished just over half of the Coles stores it acquired alongside the Target, Kmart, and Officeworks chains in a A$19.6 billion takeover in 2007, finance director Terry Bowen told the media call.

Coles outlets open at least a year have seen faster sales growth than their Woolworths peers for at least 14 consecutive quarters, according to data compiled by Bloomberg News.

At Wesfarmers’ Bunnings home-improvement unit, full-year Ebit rose 7.5 percent. Ebit at the company’s Kmart department-store chain increased 28 percent, while dropping 44 percent for Target.

The coal mining unit, which includes the Curragh steelmaking coal mine in Queensland state and a minority stake in Rio Tinto Group-controlled Bengalla north of Sydney, saw Ebit fall 66 percent. The resources division, which includes coal mining, accounted for about 3.8 percent of revenue last fiscal year, according to data compiled by Bloomberg.

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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