Published: Fri, February 17, 2017
Culture | By Antonia Gonzales

Officeworks for sale, says Wesfarmers

However, to the surprise of many, the price of that underperformance may be counterbalanced by the off-selling of Officeworks by the conglomerate.

"In light of its performance, options to monetise the value created for shareholders, including via an initial public offering, are being evaluated".

There are 163 Officeworks stores now operating across Australia with turnover increasing by six per cent over the half year to 31 December 2016 to $927 million while earnings before interest and tax grew 5 per cent to $62 million.

Strength for Wesfarmers other retailers, Bunnings, Kmart and Officeworks, offset the weakness in Coles earnings however, and a boost from higher coal prices in the resources division helped boost the conglomerate's net profit 13.2 per cent to $1.58 billion during the six months to December 31.

Goyder says that "Officeworks is well positions for future growth with a strong competitive position and ongoing initiatives to grow its addressable market".

UBS analyst Ben Gilbert cut his profit forecast by 6 per cent this year and 10 per cent in 2018, saying Coles' decision to double its price investment represented a "material shift" in its strategy and could trigger a competitive response from rivals, dragging margins down across the supermarket sector.

Bunnings' UK expansion reported a pre-tax loss of $48 million on sales of more than $1 billion for the half, which was not too bad compared to Masters' traumatic start.

Coles has posted 35 consecutive quarters of same-store sales growth but that has slowed, falling from 1.8 per cent in the September quarter to 0.9 per cent in the December quarter as Woolworths regains lost ground.

Coles' same store sales grew 1.3 per cent in the half.

"Coles is walking the line on strategy (but) it is coming at a cost to margins and increasing the risk of an ongoing price war if the behaviour goes another round as Woolworths annualises its price investment efforts from past year in the fourth quarter", Mr McLennan said.

Macquarie analyst Andrew McLennan cut his profit forecast for Coles by 7 per cent to $1.72 (including petrol and convenience), saying margins could fall another 75 points in the June half. The department store's sales fell 18% and earnings before interest and tax fell 78% - from $74 million in the first half of a year ago to $16 million.

Target continued to struggle in the six month period to December 31.

Mr Goyder said Target's $58 million earnings erosion reflected a "difficult trading period and impacts associated with significant transition work underway".

Sales at Bunnings grew 8.3 per cent and same store sales grew 6.5 per cent, driven by "continued investment in customer value, stores and online', Mr Goyder said, sending earnings up nearly 10 per cent to $770 million".

Kmart rollicked along with EBIT up 16 per cent on 9 per cent sales growth, while its department store stablemate Target continued to go backwards with earnings sliding nearly 80 per cent to just $16 million. Wesfarmers bought Homebase mid previous year an opened its first Bunnings pilot store in Hertfordshire, a fortnight ago.

Their home improvement division improved earnings 3% to $722 million.

Mr Goyder will hand over the reins of the company to Wesfarmers' head of industrials, Rob Scott, in November.

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