January 13, 2019 / 10:14 PM / 5 months ago

Australia Wesfarmers' department store sales sag, shares drop

SYDNEY (Reuters) - Australian retail conglomerate Wesfarmers Ltd (WES.AX) warned on Monday that its discount department stores made slower-than-expected sales over Christmas, sending its shares sliding to a one-month low and auguring badly for rival retailers.

FILE PHOTO - The Coles (main Wesfarmers brand) logo is seen on a facade of a Coles supermarket in Sydney, Australia, February 20, 2018. Picture taken February 20, 2018. REUTERS/Daniel Munoz

The company, far more exposed now to discretionary spending since spinning out and separately listing its supermarket chain, Coles Group Ltd (COL.AX), in November, said same-store sales at Kmart for the six months to end-December slipped 0.6 percent, falling for the first time in seven years.

Clothing sales, particularly womenswear, weakened in the crucial months of November and December while exiting the low-margin DVD category shaved about a percentage point from sales, Wesfarmers said in a trading update. Sales at its similar store, Target, rose modestly by 0.5 percent, it added.

The slowdown follows profit warnings from clothing and outdoor equipment retailer Kathmandu Holdings Ltd (KMD.NZ) and fruit grower Costa Group Holdings Ltd (CGC.AX), pointing to a broader malaise and a gloomy outlook for the company results season.

“There’s been a range of anecdotal evidence which is suggesting some weakness,” said St George Bank senior economist Janu Chan, citing foot-traffic and credit card spending reports.

“Because of the downturn in house prices there was always this risk,” she said, since that typically brakes spending on home furnishings, while also denting confidence because shoppers feel less wealthy as the value of their property ebbs.

Wesfarmers had flagged in November that Kmart’s sales growth was moderating, and it said on Monday the trend continued through the latter part of November and December.

The reversal at Kmart, which had previously been performing well and growing quickly, sent Wesfarmers shares 3 percent lower by lunchtime, touching a month low, while the broader market fell 0.1 percent.

The Perth-based company is in the midst of its biggest portfolio overhaul in a decade, having last year sold out of the coal mining business, as well as unloading Coles, to seek faster growth elsewhere.

It said on Monday that it expected a non-cash gain between A$2.1 billion and A$2.3 billion ($1.5 billion to $1.7 billion) from the demerger and that the clearout of its other assets would cut net debt from A$3.6 billion last June to A$300 million at Dec. 31.

Outside of Target and Kmart, it said its other retail businesses were performing in line with management expectations, though investors will be keenly watching its hardware business, Bunnings, for any sign its booming growth is waning.

“Are we also about to see a slowdown in the housing market cause a slowdown in DIY renovations?” asked Evan Lucas, chief market strategist at fund manager InvestSmart.

Wesfarmers is due to report its half-year results on Feb. 21.

Reporting by Tom Westbrook in Sydney. Additional reporting by Aditya Soni in Bengaluru; Editing by Peter Cooney and Muralikumar Anantharaman

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