Bunnings UK future in doubt

Bunnings UK future in doubt
Melbourne/Australia - July 29 2017: Target is a discount department store owned by Wesfarmers. Photo: NilsV, Bigstock

Shares in Wesfarmers shave dropped and the retail giant is weighing up the future of Bunnings Warehouse in the United Kingdom.

The group has confirmed that they are looking to make impairment changes and has also flagged write-downs with its most recent earnings report due later this month.

This comes off the back of a $1.3 billion loss in performance from both Target and Bunnings UK. The majority of this hit will come against Bunnings UK and Ireland with an impairment charge totaling $795 million.

New manager director Rob Scott, who only took the job last November said that the focus needed to be on the underperformance in the portfolio “that is detracting from positive performance in other areas”.

Homebase changes have negative impact

Since 2016, when Wesfarmers UK operations acquired Homebase for $705 million, they have not met perfromance expectations.

Mr Scott said that an exit from the region was not the desired option but that the business has failed to maintain profitability since 2016 and this was 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 be meaningful enough…that’s an open question”.

Much of the decline has been attributed to the rapid changes made to the Homebase chain upon Wesfarmers’ acquisition.

There were a number of changes made to the range on offer and the style of the stores which Mr Scott said was “not well received by traditional Homebase customers”.

 

There are still some encouraging signs, however, with the performance of the first “UK-branded Bunnings store said to be positive. Having opened 12 months ago, the initial opening of now 19 stores has been successful.

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

Target’s tough trading conditions

Tough trading conditions “in an increasingly competitive market” in Australia are having an impact on the performance of Wesfarmers department store Target.

Despite a “$306 pre-tax impairment charge” following a failure to meet performance expectations, its underlying earnings are set to reach #33 million for the first half of the financial year.

The Wesfarmers half-yearly report is due to be released on February 21.

Shares in the company fell 4.7% yesterday to $42.09

Wesfarmers have said that they do not expect the fall to impact any of the dividends paid to investors.