Shining in the retail gloom – Wesfarmers unveils strong earnings growth at Coles, Bunnings and Officeworks

Perth-based conglomerate Wesfarmers has provided a ray of hope for the retail sector this morning, delivering strong profit growth at its Coles, Bunnings and Wesfarmers chains.

Perhaps more importantly, Wesfarmers said it also remained positive about the outlook for the group despite the obvious pressure on the retail sector.

“The group remains positive in its outlook, subject to any adverse shocks from a fragile global economy, given the solid operating fundamentals in place across the divisions and an expected recovery from one-off impacts associated with natural disasters experienced during the prior period,” Wesfarmers said in a statement.

“While the outlook for future performance of the group’s retail divisions remains subject to any further declines in consumer confidence, the retail brands are well-placed given their staples and value-based positioning.”

The results from Wesfarmers’ retail division are strong given the backdrop of poor consumer confidence and natural disasters in Australia (floods) and New Zealand (the Christchurch earthquake).

The result suggests that staple goods presented with a “value conscious” marketing message are still selling – and that cost cutting can drive profit growth.

Earnings in the company’s Coles division leapt an impressive 21.2% to $1.2 billion in 2010-11 on the back of a 6.9% increase in sales to $32 billion. Fresh food sales increase $600 million after Coles launched a discounting war on milk, butter and bread early in the year.

Earnings before interest and tax at Wesfarmers’ hardware giant jumped 10.2% to $802 million, with revenue increasing 5.7% to $6.8 billion.

There was also an impressive 8.1% increase in earnings at Officeworks to $80 million, while revenue grew 4.4% to $1.5 billion. Officeworks said its B2B offering was starting to gain traction and should accelerate in 2011-12.

Kmart’s earnings before interest and tax increased 4.1% to $204 million.

Wesfarmers’ total revenue increased 5.9% to $54.9 billion, while net profit increased 22.8% to $1.9 billion.