Australian discount department store Target has recorded a drop in first-half sales while sister brand Kmart continues to yield strong growth.
Wesfarmers' total department stores division earnings for HY2018 remain strong due to greater strategic coordination between the two brands across ranging, sourcing and property to better meet customer needs.
This has resulted in the division achieving earnings of approximately $415 million for the first half of the 2018 financial year, representing the highest level of combined Kmart and Target first-half earnings since the 2010 financial year.
Target has progressed in its strategic plan, significantly reducing its cost base and inventory levels, improving merchandise disciplines and increasing the level of direct sourcing.
Despite this consolidation, the Target brand has experienced lower than expected sales for the first-half of the 2018 financial year.
Difficult trading conditions were highlighted as a factor behind the drop in sales. As a result of the lower than expected sales performance, and reflecting a more conservative outlook for the business, Wesfarmers will record a pre-tax (post-tax) non-cash impairment of $306 million ($300 million).
Target is still expected to report EBIT of $33 million for HY2018, representing an improvement of 13.8% on underlying earnings of $29 million in the prior corresponding period.