Kmart, Target eye budget-savvy shoppers after rebounding from COVID hit

Earnings at discount department stores Kmart and Target have been hit hard by a year of COVID-19 disruptions but owner Wesfarmers says the brands are rebounding and well positioned for the cost of living crunch.

On Friday morning Wesfarmers revealed a 2.9 per cent drop in net profits after tax to $2.3 billion for 2022, due to retail trading restrictions seen in the first half of the year.

The company said profits had recovered in the six months to June 30 and were up 13.1 per cent.

Sales and earnings at Kmart dropped for 2022 but a rebound is on the way.

The retail giant’s Kmart Group, which includes Kmart, Target and online retailer Catch, felt most of the brunt, with revenues down 3.5 per cent to $9.6 billion and earnings before interest and tax dropping 35.7 per cent to $505 million.

Kmart’s sales increased by 0.5 per cent for the year overall, while Target’s declined 15.8 per cent – largely because of closures of Target and Target Country stores over the past two years.

Wesfarmers managing director Rob Scott said conditions at the retailers had improved, however.

“Results for Kmart Group improved significantly in the second half, with Kmart and Target delivering strong second-half earnings growth of 19.4 per cent, benefiting from actions taken in recent years to optimise the store network,” he said.

As inflationary pressures hit household budgets, the business says the stores are well-matched to budget savvy shoppers.

“Kmart is uniquely positioned in an inflationary environment to extend its low-price leadership and profitably grow its share of customer wallet,” the company said in its report to shareholders.

Officeworks revenues were up for the year to $13.2 billion, but its earnings of $181 million were 14.6 per cent lower after lockdowns shuttered stores and the brand’s high-margin printing centres.

Bunnings saw revenues rise by 5.2 per cent.Credit:Pat Scala

Hardware chain Bunnings delivered a strong result for the year, with revenues up by 5.2 per cent to $17.7 billion and earnings ahead 0.7 per cent to $2.3 billion.

The company said the outlook is still strong for Bunnings, though supply chain challenges remained for the retailer.

“The demand outlook across consumer and commercial is supported by a solid pipeline of renovation and building activity, as well as incremental DIY growth opportunities,” Wesfarmers said.

Investors will see a final fully-franked dividend of $1 per share, bringing the full-year payout up to $1.80, an increase of 1.1 per cent.

Scott said the company’s directors had agreed on the payout based on strong trading in the second half.

More to come.

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