Kmart underpins strong half for Wesfarmers – but inflation fears loom

Wesfarmers has reported a 14 per cent increase in interim profit, with its Kmart arm sales up by 114 per cent. However, the company says its retail business will soon face headwinds due to ongoing inflation and interest rate hikes.

The retail business of Wesfarmers comprises Bunnings, Officeworks, and the Kmart Group – which includes Kmart, Target and Catch.

For the six months to December 31, overall sales climbed 27 per cent to $22.56 billion while tax-paid profit reached $1.38 billion, up 14.1 per cent.

Kmart Group’s revenue increased 114 per cent to $475 million as trading conditions normalised during the half.

Officeworks’ revenue increased 3.7 per cent to $1.65 billion supported by an increase in demand across key categories including print & create, stationery, art and education which were impacted by lockdowns in the prior corresponding period.

Online marketplace Catch reported a loss of $108 million as its gross transaction value (GTV) plunged 26.8 per cent.

Despite prolonged wet weather conditions on Australia’s east coast, resilient consumer demand drove Bunnings’ revenue up 1.5 per cent to $1.28 billion.

Wesfarmers MD, Rob Scott, said the group’s largest divisions have performed particularly well.

“Solid sales and earnings were reported in Bunnings together with strong earnings results delivered by both Kmart Group and WesCEF [the group’s non-retail chemicals, energy and fertilisers business].

“Growth across the retail businesses also reflected the impact of Covid-related lockdowns in the prior corresponding period.”

However, he added elevated inflation and higher interest rates are expected to impact demand in parts of the Australian economy and result in households becoming more “value-conscious”.

“Elevated cost of doing business pressures in Australia and New Zealand are expected to persist in the second half, as general inflation together with labour market constraints impacts personnel costs and costs in domestic supply chains.

“In this environment, the strong value credentials and low-cost operating models across the group’s retail businesses mean they are well positioned to meet changing customer demand as customers adjust to cost pressures,” he said.

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