Wesfarmers : 2017 First Quarter Retail Sales Results

26 October 2016

Refer to Appendix Three for footnotes.

Wesfarmers Limited today announced its retail sales results for the first quarter of the 2017 financial year.

Managing Director Richard Goyder said that the sales performance of the Group's retail businesses, with the exception of Target, built on the strong sales growth achieved in the prior corresponding period.

"Coles' headline food and liquor sales increased by 2.9 per cent for the quarter, building on the strong growth achieved in the previous corresponding period," Mr Goyder said. "Coles continues to invest in value, service and quality, supported by ongoing efficiency improvements across the business.

"Bunnings Australia and New Zealand achieved total sales growth of 7.4 per cent during the quarter, extending its very strong performance despite an impact from the stock liquidation activities of the Masters business. In the United Kingdom and Ireland, good progress continues to be made to reshape the business, with sales of £320 million ($554 million) for the quarter, in line with expectations.

"Kmart recorded strong sales growth of 11.2 per cent, with a continued focus on lowest prices and the customer experience delivering growth across all categories. Target experienced a challenging quarter, with the accelerated conversion to everyday low pricing and the decision to cease the Toy Sale contributing to a 17.1 per cent decline in sales.

"Officeworks' sales growth of 7.5 per cent reflected strong execution of its 'every channel' strategy, with positive sales growth achieved both in-store and online.

"The Group's retail businesses will continue to invest in customer value, service and store networks, as well as improve product ranges and digital capabilities to deliver sustainable growth over the long-term."

Headline food and liquor sales for the first quarter1 were $7.9 billion, up 2.9 per cent on the previous corresponding period.

Comparable food and liquor store sales increased 1.8 per cent and comparable food store sales increased

1.7 per cent for the quarter1. Food and liquor price deflation reduced to 1.0 per cent for the quarter1 as the deflationary pressure from produce abated.

Coles Managing Director John Durkan said that the comparable sales growth achieved in the quarter1 was satisfactory and current market conditions confirm the importance of Coles' customer-led strategy. "Coles now has approximately 4,000 items on Every Day value as we continue to lower the cost of the weekly shop, and fresh remains a key sales driver as fresh participation growth accelerated through the quarter relative to the prior year," Mr Durkan said.

"In our food business, we have seen a change in market conditions over the past year. Market growth has slowed, while at the same time there has been an increase in competitive intensity. Despite these changes in market conditions, our focus on the customer will not waver.

"Our ambition to be Australia's best food retailer means that we will continue to invest in improving our customer offer year-after-year to deliver sustainable long-term growth. Our strategy also allows flexibility to respond during periods of elevated competition to ensure that we retain the trust of our customers for offering compelling value, coupled with market leading service and quality.

"The liquor business achieved its fourth consecutive quarter of growth in comparable store sales, led by the continued improvement in Liquorland's performance," Mr Durkan said. "It is pleasing to see the business maintain the positive sales momentum that was established in the prior year as we continue to progress our transformation strategy."

Coles continued to improve and optimise its store network, opening four supermarkets and closing three during the quarter1, resulting in a total of 788 supermarkets at the end of the quarter1. Nine supermarkets were renewed during the quarter, with over 50 renewals planned for the 2017 financial year.

Liquor continued to improve its store network, opening eight new stores and closing four stores during the quarter1. At the end of the quarter, Coles had a total of 869 liquor stores and 89 hotels.

Total Coles Express sales, including fuel, for the quarter1 were $1.5 billion, a decrease of 13.7 per cent on the previous corresponding period. The decrease in sales was driven by lower fuel volumes and lower fuel prices, offsetting the continued growth in convenience store sales.

Headline Convenience store sales increased 7.4 per cent for the quarter1 and 3.2 per cent on a comparable store basis. Convenience store sales growth was driven by improvements in the food-to-go offer and the extension of Every Day value. The continuation of solid growth in store sales, despite declining fuel volumes, reflected the ongoing investment to improve the convenience shop offer.

For the quarter1, headline fuel volumes decreased 7.0 per cent and comparable fuel volumes decreased

10.7 per cent. While these results reflected an improvement on the previous quarter, fuel volumes continued to be affected by competitor site upgrades and a lower number of site openings compared to competitors.

Coles Express continued to expand its network during the quarter1, opening two new sites, bringing the total store network to 692 sites.

Refer to Appendix Three for footnotes.

Total sales for the quarter4 were $2.7 billion, up 7.4 per cent on the previous corresponding period. Total store sales for the quarter4 increased 7.3 per cent, while store-on-store growth was 5.5 per cent.

Sales growth was solid across both consumer and commercial customers. The results during the quarter built on the very strong performances achieved in the two prior corresponding periods in the 2016 and 2015 financial years, where total sales grew 11.6 per cent and 11.0 per cent respectively. A highlight was the pleasing growth experienced in New Zealand.

Across many parts of Australia, trading in the quarter4 was tempered by wetter and cooler weather conditions relative to the prior corresponding period. As foreshadowed at the time of the full-year results release, the latter part of the quarter was also affected by the stock liquidation activities of the Masters business, with this disruption continuing in the second quarter.

John Gillam, Chief Executive Officer of the Home Improvement division, said the BANZ business remains focused on creating better experiences for customers, strengthening core activities to improve productivity and driving stronger growth.

"Creating more value for customers, enhancing brand reach and stronger commercial engagement are at the forefront of our plans. Pleasing progress within our strategic agenda has BANZ positioned to perform well," Mr Gillam said.

Sales for the first quarter4 were in line with expectations at £320 million ($554 million).

The first quarter marked the fifth, sixth and seventh months of ownership of the Homebase business and trading continued to be steady. There is a strong focus within the business on continuing to transition core ranges across to home improvement and garden products. Pleasing progress is being made with this work.

Mr Gillam said the implementation of new pricing, marketing and operational strategies within Homebase is achieving results in line with plans. On a like-for-like trading basis across the first quarter, customer participation, as measured by transactions, increased by 8.4 per cent.

"Good progress is also being made across all elements of the acquisition agenda," Mr Gillam said.

Refer to Appendix Three for footnotes.

Total sales for the quarter1 were $1.2 billion, an increase of 11.2 per cent on the previous corresponding period, with comparable store sales increasing 8.2 per cent.

Kmart Managing Director Ian Bailey said strong sales momentum continued in the first quarter, supported by double-digit growth in units sold. Sales increased across all categories compared to the prior corresponding period, with Home and Kids performing particularly well.

"Our commitment to deliver the lowest prices on everyday items continued to resonate well with customers, delivering growth in both transactions and basket size on the prior corresponding period," Mr Bailey said. "We remain focused on improving the customer experience through further investment in the store network, with over half of all stores now in the renewed format."

During the quarter1, Kmart completed nine store refurbishments and opened one new store. Kmart Tyre and Auto opened one store during the quarter1.

Total sales for the quarter6 were $643 million, a decrease of 17.1 per cent on the previous corresponding period, with comparable store sales, which included significant Toy Sale lay-bys in the prior corresponding period, decreasing 21.9 per cent.

During the quarter6, sales were significantly affected by lower promotional activity, reduced in line with plans to accelerate the conversion to everyday low prices (EDLP), and a slow start to summer seasonal sales. In addition, the decision to cease the Toy Sale affected sales in Toys and adjacent categories by approximately $75 million. Positively, during the quarter good progress was made to reduce costs, which included improvements in supply chain and store productivity.

Department Stores Chief Executive Officer Guy Russo said that the slowing sales momentum experienced in the fourth quarter of the 2016 financial year continued into the first quarter of the 2017 financial year.

"While early in Target's transition, and despite some progress being made on pricing, inventory and range rationalisation, poor underlying trade momentum proved challenging in the quarter," Mr Russo said. "We are committed to converting Target to an EDLP business and, at this early stage of the transition, improvements to product and ranges have not been sufficient to offset reduced promotional activity and investments made in price."

"Target is making significant changes to its operating model which will take time to implement," Mr Russo said. "We will continue to action initiatives through this transitional 2017 financial year to improve, over time, the long-term performance of Target."

During the quarter6, Target made no changes to its store network.

Refer to Appendix Three for footnotes.