Kmart sales take a hit during weak Christmas period for retailers
A Christmas spending spree failed to eventuate for Kmart, with the retailer seeing its sales deteriorate through late November and December, as analysts warn of a slow period for retailers more broadly.
- Kmart’s sales fell 0.6 per cent over the the first half of the financial year
- Target’s sales grew and Wesfarmers has made more than $3b in one-off gains on asset sales
- Morgan Stanley analysts are expecting lower earnings for discretionary retailers due to a weak Christmas
The discount department store is usually an outperformer for WA conglomerate Wesfarmers, but comparable sales decline by 0.6 per cent over the first half of the financial year.
Wesfarmers says weak clothing sales, particularly in womenswear, and a decision to stop selling DVDs hurt Kmart’s performance during the key Christmas trading period.
Sales of everyday products also slowed compared to the same period in the previous year, when the retailer saw strong trading on the back of price cuts.
In a reversal of the usual pattern of Kmart offsetting weakness in Wesfarmers’ other chain, Target saw comparable sales increase by half a per cent during the period.
A year ago, Target took a $306 million write-down, which the company said reflected tough competition and difficult retail conditions, but strong sales at Kmart saw the department store division deliver its strongest earnings in eight years.
Today, Wesfarmers flagged lower earnings for the division as a whole, between $385 million and $400 million, when it releases its first-half results on February 21.
Analysts cut retail outlook after soft Christmas sales
The weakness at Kmart reflects a broader trend across the retail sector, with Morgan Stanley analysts saying industry-level data suggests a soft Christmas trading period for non-food retailers.
“Falling house prices, a greater focus on Black Friday driving discounting, and weaker equity markets all look to have held the Australian consumer back this Christmas,” they wrote in a note.
Australian Bureau of Statistics figures showed better-than-expected retail sales growth in November as shoppers took advantage of sales events, including Black Friday, leading some economists to expect a weaker December result.
Morgan Stanley said foot traffic in Australian retail stores “decelerated badly” during December.
“This is partly explainable by consumers browsing online then transacting instore, increasing conversion, but still looks soft,” they noted.
The Morgan Stanley analysts are lowering their earnings estimates for discretionary retailers as a result of disappointing Christmas trade and the tough economic environment for the sector.
One-off gains for Wesfarmers on asset sales
When Wesfarmers releases its first-half results next month, it will book more than $3 billion in one-off gains from asset sales and the demerger of supermarket giant Coles.
During the period, the conglomerate sold its stake in the Bengalla coal mine in the NSW Hunter Valley, Kmart Tyre and Auto Service and its interest in WA gas supplier Quadrant Energy.
“Wesfarmers enters the new calendar year with a strong balance sheet and operating businesses well positioned for the future,” said Wesfarmers managing director Rob Scott.
Wesfarmers shares had declined 2.6 per cent to $31.12 by 11.20am (AEDT).