Future Bunnings UK in doubt

Melbourne/Australia – July 29, 2017: Target is a discount department store owned by Wesfarmers. Photo: NilsV, Bigstock

Shares in Wesfarmers shave fell and the retail giant is weighing the future of Bunnings Warehouse in the UK.

The group has confirmed it plans to make changes to impairment charges and has also marked write-offs with its most recent earnings report expected later this month.

This is due to a $1.3 billion performance loss from both Target and Bunnings UK. The bulk of this hit will come against Bunnings UK and Ireland with impairments totaling $795 million.

New CEO Rob Scott, who took the job only last November, said the focus should be on the underperformance in the portfolio “that detracts from positive performance in other areas”.

Home base changes have a negative impact

Since 2016, when Wesfarmers’ business acquired UK Homebase for $705 million, they have failed to meet performance expectations.

Mr Scott said an exit from the region was not the desired option, but the company has failed to maintain profitability since 2016 and this is an issue that needs to be addressed.

He ended by saying that the future of Wesfarmers in the UK came down to “whether or not it will make sense enough…that’s an open question”.

Much of the decline is attributable to the rapid changes made to the Homebase chain following the acquisition of Wesfarmers.

There have been a number of changes to the store’s offerings and style which, according to Mr Scott, “were not well received by traditional Homebase customers”.

However, there are still some encouraging signs as the performance of the UK brand’s first Bunnings store is positive. After opening 12 months ago, the first opening of now 19 stores has been successful.

Bunnings UK and Ireland are expected to post an underlying loss of $165 million for the first half of the current fiscal year.

Target’s Difficult Trading Conditions

Difficult trading conditions “in an increasingly competitive market” in Australia are impacting the performance of Wesfarmer’s department store Target.

Despite a “$306 pre-tax impairment charge” due to the failure to meet performance expectations, underlying earnings for the first half of the fiscal year will be 33 million.

Wesfarmers’ semi-annual report will be published on 21 February.

Shares in the company fell 4.7% to $42.09 yesterday

Wesfarmers have said they do not expect the decline to affect dividends paid to investors.

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