Wesfarmers maintain it’s UK pilot stores are showing signs of potential

Wesfarmers’ managing director Robb Scott has deflected repeated questions from analysts over the beleaguered Bunnings UK and Ireland (BUKI) venture, failing to commit to providing a concrete answer on the future of the business at a strategy day in June.

After writing down nearly $1 billion from BUKI several weeks ago and reporting a $165 million earnings loss on the business for the first-half on Wednesday, Scott said questions over the future of the business would need to wait until the conclusion of an ongoing review, slated for June.

But Scott, who is reporting his first half-year result in the top job at Wesfarmers, did not commit to providing a “resolution” on the future of the business once the review is completed.

“Is there a risk that you come back in June and simply say, the review is progressing,” one analyst asked.

“I’m not going to pre-empt where we’re going to get to, I’d stress that we’re very focused on, as I said a couple of weeks ago, not just allowing the current losses, which are significant and untenable, we are not prepared to let them run out for a long period of time,” Scott responded.

Scott said Wesfarmers will update the market in June on how it has addressed the ongoing losses sustained by BUKI.

Wesfarmers have left the possibility of divesting from BUKI open, which it acquired in 2016, saying earlier this month that “all options are on the table” amid worsening conditions.

That is not management’s preference though, as outstanding lease obligations would make an exit costly.

Instead, Scott said Wesfarmers was focused on stemming the bleeding by bringing in local talent to reform the business and correct mistakes it had made in the initial roll-out.

Scott disagreed with a suggestion that the decision to be open about the problems at BUKI had compromised the business, saying that the honesty had been “well received” by the team.

Bunnings managing director Michael Schneider said that BUKI’s performance in the first-half was “disappointing” and that planning and execution has “simply not been good enough”.

Despite that, Wesfarmers’ maintains that feedback from its 15 Bunnings pilot stores in the UK has been positive, with 20-40 stores underperforming stores within the struggling Homebase network likely to close in the coming periods.

Bunnings ANZ outlook good, despite housing concerns

Bunnings ANZ (BANZ) performed much better than BUKI, booking a 12.2 per cent increase in earnings to $864 million on a 10.2 per cent increase in top-line sales and a 9 per cent increase in same-store-sales.

Schneider said the business is positioned well for the second-half, despite concerns about a moderating housing market and macro-economic headwinds.

“BANZ has a strong track record in weak periods…good trading momentum is expected to continue in 2H18, supported by further investment in lower prices, category refresh work, network expansion and investment,” he said.

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