UPDATE 2.40pm Canny shoppers are seeking value for money to combat falling house prices and shrinking superannuation funds, Wesfarmers boss Richard Goyder says as his conglomerate posts an 11 per cent lift in full-year profit.
The company’s full year profit to June 30 rose 11 per cent to $2.1 billion, up from $1.9 billion for the previous corresponding period.
Wesfarmers’ shares surged to a 15-month high of $34.20 shortly after the results were announced and closed the day at $33.72
Total revenue for the group rose to $58.1 billion, from $54.9 billion.
Its supermarket chain Coles lifted its earnings by 16.3 per cent to $1.3 billion.
Mr Goyder said Wesfarmers’ retail chains, which also included Kmart, Target, Bunnings and
Officeworks, were doing well in a tough trading environment because they focused on value for money.
He said while the Australian economy was doing well he could understand why shoppers were reluctant to spend big as falling house prices and diminishing superannuation funds, combined with a steady stream of bad financial news from overseas, made them focus on financial security.
"I think with all of that, consumer behaviour is fairly rational at the moment,” he said.
"That is people are tending to save more, repay mortgages if they can, and in the meantime we’re providing great value in our stores so they’re buying more for less."
He said he had seen no major change in consumer confidence this year and expected that to continue.
Mr Goyder also rejected claims the supermarket price war between Coles and Woolworths was squeezing out competition and bullying suppliers into accepting smaller margins.
He said while Coles had opened new stores since Wesfarmers took over the business five years ago, it had closed the same number due to poor performance and its market share was roughly the same.
In the same period, he said overseas chain Aldi had opened more than 100 stores in Australia.
He said while some suppliers may have been unhappy when Wesfarmers revamped Coles’ product range it was necessary in order to get the best result for customers.
"The vast majority of our suppliers are far happier than they were when we took over the business five years ago because we’re in a much better shape than we were then,” he said.
Kmart earnings increased 31.4 per cent to $268 million, Officeworks earnings were up 6.3 per cent to $85 million and Bunnings was up 4.9 per cent to $841 million.
However, revenue for Target declined by 1.2 per cent compared to the previous year due to tough trading conditions.
Morningstar head of research Peter Warnes said he had expected the market to respond well to the results because the company’s outlook was positive despite the conditions, and the balance sheet was in excellent shape.