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Hardware troubles slow profit growth for Australia's Wesfarmers

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The company has become more susceptible to discretionary spending since it spun off its supermarket chain, Coles Group Ltd, last year.

[BENGALURU] Australian conglomerate Wesfarmers Ltd reported slowing growth at its hardware division and an earnings fall in discount department stores on Tuesday, although it still managed to post higher annual profit thanks to its diversified operations.

With growth in the Australian economy faltering, a sharp decline in house prices and tepid wage growth has discouraged consumer spending for non-essential items, hitting Australia's retail sector in recent months.

Pre-tax profit from Wesfarmers' hardware division Bunnings - the company's biggest growth engine - grew 8 per cent for the 12 months ended June 30, its slowest pace since 2013. Same-store sales growth halved from the previous year.

Wesfarmers shares slipped to a more than one-week low in early trade before rebounding to be little changed at 0206 GMT, while the broader market was up 0.3 per cent.

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"This is a company for all economic seasons and again its shown a great diversity in its income," said James McGlew, executive director of corporate stockbroking at Argonaut. "It's hard to please everyone with a company as diverse as Wesfarmers."

Wesfarmer reported adjusted net profit from continuing operations of A$1.94 billion (S$1.81 billion), up 13.5 per cent from A$1.71 billion a year earlier. The result matched average analyst expectations, according to Refinitiv data.

Revenue from continuing operations rose 4.3 per cent to A$27.92 billion. Wesfarmers declared a final dividend of A$0.78 per share, compared with A$1.20 last year.

SHOPPING AROUND

In 2018, Wesfarmers underwent its biggest portfolio overhaul in a decade, having sold out of its auto business and coal assets, as well as quitting a disastrous foray into British hardware, to seek better returns elsewhere.

The company has become more susceptible to discretionary spending since it spun off its supermarket chain, Coles Group Ltd, last year.

Earnings from Wesfarmers' cut-price retail business, which includes Kmart and Target stores, fell to A$540 million from A$626 million, within the company's forecast range.

Wesfarmers, which has built up a war chest after the revamp under Managing Director Rob Scott, is looking for a new growth leg beyond the retail businesses that dominate its portfolio.

The retail-to-chemicals group has been eyeing takeover targets in 2019, acquiring online retailer Catch Group Ltd and bidding for lithium miner Kidman Resources Ltd, as the company looks to diversify its business.

Last week, Wesfarmers said it would not pursue its proposal to buy rare earths miner Lynas Corp. The company had made a surprise US$1.1 billion bid for the miner.

 

REUTERS