Sister brands Target and Kmart have revealed polar opposite results for the 2013 fiscal half year, with one company flying high and the other in decline.
Wesfarmers, parent company to both businesses, recorded a net profit after tax of $1,285 million for the half-year ended December 31, 2012, up 9.3 per cent on the previous corresponding period.
Total earnings for the retail portfolio also increased by $147 million to $1,705 million for the first half of the 2013 financial year.
The results reflected strong retail earnings before interest and tax (earnings) and growth in Coles, Bunnings and Kmart, together with a turnaround in the insurance division’s performance, which offset reduced earnings in Target and the resources division.
Kmart, buoyed by a strategy of providing the lowest prices, confirmed “very strong earnings growth” of 24.9 per cent to $246 million for the half year, with earnings growth also supported by improvements in sourcing, reduced markdown activity.
Target, however, has experienced a decline, with earnings of $148 million, 20.4 per cent below the prior corresponding period.
Commenting on the results, Wesfarmers said that higher costs associated with Target’s transformation plan weighed on its earnings during the half.
In particular, significant additional expenditure on repositioning Target’s strategy, management resources and customer offering was incurred during the period.
However, the business remains in the early phases of its transformation, according to the company.
“From a trading perspective, early progress in implementing Target’s transformation plan was encouraging with sales momentum improving through the half and a positive customer response received on a number of new initiatives aimed at strengthening Target’s offer.”
Going forward, the group said it remains cautiously optimistic about its second half outlook, despite continuing economic and market uncertainty.
Growth is expected from the group’s retail businesses, including Target and Kmart, in particular, as they further improve customer offers and operating efficiencies, and strengthen all channels to market.