Australia's Wesfarmers sees FY19 Kmart core earnings lower vs year ago

Credit: REUTERS/Steven Saphore

Australian conglomerate Wesfarmers Ltd said on Thursday full-year earnings at its Kmart Group discount retail chain will fall below last year's, hurt by a price war and subdued consumer sentiment.

Adds details, background, capex guidance

June 13 (Reuters) - Australian conglomerate Wesfarmers Ltd WES.AX said on Thursday full-year earnings at its Kmart Group discount retail chain will fall below last year's, hurt by a price war and subdued consumer sentiment.

Wesfarmers expects earnings before interest and tax from continuing operations for Kmart Group for the 2019 financial year of A$515 million to A$565 million ($357 million to $392 million), down from A$631 million a year ago, it said in a statement.

Total sales in the second half to date for Target, its other retail unit also fell by 3.6%, the company added.

The underperformance of Kmart and Target will hurt the retail-focused firm at a time when shoppers in Australia have tightened their purse-strings in response to rising household debt, tepid wage growth and a steep property downturn.

Last year, Wesfarmers underwent its biggest portfolio reshuffle in a decade, selling a coal mine and spinning off supermarkets chain Coles Group Ltd COL.AX. The change has left the conglomerate more reliant on its Kmart and Target businesses and more exposed to discretionary spending.

Wesfarmers Managing Director Rob Scott said while Kmart's trading performance is below expectations, the company will continue to increase investment in online and other digital initiatives.

On Wednesday, the Perth-based company announced it is buying e-commerce retailer Catch Group to boost the online footprint of its retail units such as Kmart and Target as it looks to widen its base from traditional brick-and-mortar retail business to meet competition from the likes of online giant Amazon.com Inc AMZN.O.

In a separate strategy briefing presentation on Thursday, Wesfarmers said it expects net capital expenditure for financial year 2019 of A$800 million to A$850 million.

The company made no mention of its takeover offer for rare-earth miner Lynas Corp LYC.AX.

($1 = 1.4430 Australian dollars)

(Reporting by Shriya Ramakrishnan in Bengaluru; editing by Richard Pullin)

((Shriya.Ramakrishnan@thomsonreuters.com; +91-80-6749-1695; Reuters Messaging: shriya.ramakrishnan.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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