Wesfarmers boss Rob Scott says ‘the honeymoon is very much over’ for retailers

The majority of Wesfarmers businesses provided essential products and were known for their value, which boded well given elevated inflation and continued cost-of-living pressures, he said.

“We expect value to become even more important for customers, and we are seeing that today,” he said.

Health acquisitions

Wesfarmers is considering bolt-on acquisitions in digital and consumer health, but declined on Tuesday to make a higher bid for botox clinics operator Silk Laser Australia.

Wesfarmers’ API, which owns Priceline pharmacies and Clear Skincare Clinics, had offered $3.15 cash per share for Silk Laser but was topped by Hong Kong-based suitor EC Healthcare last week when it proposed a $3.35 a share offer. Street Talk reported that API is in talks with InstantScripts.

Digital earnings

OneDigital managing director Nicole Sheffield said Catch.com.au was making progress on its turnaround, and had reduced losses every month since October last year, after calling its half-year results unacceptable.

Morgan Stanley analysts expect OneDigital combined with Wesfarmers’ marketplace Catch to report a $250 million loss this year, moderating next financial year.

“We have seen improved customer NPS (net promoter scores) since the start of the financial year, we’ve exited approximately 25 per cent of our 1P (first party) range as we are focused on providing a more targeted, profitable offer,” she told investors.

Bunnings, Wesfarmers’ biggest earner generating $17.8 billion in sales and $2.2 billion in earnings, signalled opportunities in pets and the roll-out of its power tools business Tool Kit Depot.

Hardware chain boss Mike Schneider is focused on productivity and maintaining its low-cost business model, noting trials using robots to optimise stock replenishment with overnight scanning and trialling electronic shelf labelling.

“It is all about b2b (business to business) relationships across small business and industries such as government insurance, aged care, education, franchisee, and membership organisations. And we see big opportunities for growth in this area across a number of those industries,” he told investors.

Bunnings plans to open framework truss plants this year in Victoria and New South Wales, and a plant in Queensland later this year, where Mr Schneider sees cross-selling options with its commercial customers via the Power Pass loyalty program central to this offer. Beaumont tiles has expansion plans into Western Australia over the next five years with lots of “runway ahead for growth or expansion of retail space and existing sites”.

Mr Schneider said new categories like pet-care will help drive sales at Bunnings. In February, it launched its biggest product expansion in decades as Bunnings seeks a larger slice of the fast-growing $10 billion specialty pet sector.

Across the economy, hardware industry sales in March went backwards, according to Australian Bureau of Statistics data.

“As we look across the other categories, and given the diversity of those, we see categories that have experienced good growth… cleaning and obviously new categories like pets.”

He noted a pulled forward of sales in categories like paint. A cohort of people working from home are still making investments into their homes and gardens, and he added that the resilience of house prices is another positive.

Anko overseas

Discount chain Kmart’s boss Ian Bailey told investors the retailer is targeting overseas expansion for its home brand Anko. In Canada, Kmart launched Anko with Hudson Bay Company and a store-in-store concept with discount chain Zellers, which includes apparel, toys, pets and home.

“We are now actively exploring opportunities in Europe, as the next step,” Mr Bailey said.

He is targeting Gen Z and beauty as key areas of growth for Kmart: “Beauty is a category where we see a strong consumer demand for value, especially amongst younger customers,” he said.

Kmart’s ‘click and collect’ and ‘direct to boot service’, which is currently in trial phase, enables the chain to leverage its regional footprint to deliver greater convenience for shoppers and grow share of wallet, while still maintaining profitability of the online channel.

“We’ve already seen some signs that our low price leadership is resonating strongly with many customers and customer numbers have grown over the last 12 months as shopping frequency has also increased,” he said.

Mr Bailey added that it’s slimmed down network of Target stores is now profitable, and it has a focused offer centred on apparel and soft home goods targeting mothers as the core customer.

Overall, Mr Bailey said the cost of goods like cotton is falling, but currency is the big unknown, and with power bills and wages bills increasing productivity measures are important, such as investing in better staff rostering.

Mr Scott was quick to tell shareholders that Wesfarmers’ long-term total shareholder returns had exceeded the broader market since its 1984 listing. He said net capital expenditure for the 2023 financial year would be between $1.1 billion and $1.2 billion, with much of this related to growth capital expenditure.

Before the strategy day, JPMorgan analyst Bryan Raymond downgraded his earnings per share forecasts for next financial year and 2025 by 2.9 per cent and 2.5 per cent, respectively, following commodity price updates for its WA lithium project Mount Holland and exit from Coles. He has a $47 target price and an “underweight” rating.