Retail giant Wesfarmers (ASX: WES) released its first-quarter sales figures last week and all in all the results were pleasing. The highlight of the quarter was undoubtedly the highly profitable Bunnings division, which despite new competition for the Woolworths' (ASX: WOW) owned Masters Home Improvement stores, managed to boost its total sales by 10.3% compared with the previous corresponding quarter. On a comparative store basis, sales growth was still an impressive 7.1%.
The Coles, Liquor, Petrol, Officeworks and Kmart divisions all produced respectable single-digit sales growth with Target being the only division to record a contraction in sales, registering a decline of 6.1%. Target's performance, which carries a higher price point offering and competes more directly with Big W, was in stark contrast to Kmart, which has positioned itself as predominantly a 'home brand' offering and has now registered 15 quarters of growth in transactions and units sold.
Target's results don't bode well for a number of other retailers and will make Big W's sales number closely watched at Woolworth's first-quarter sales announcement this Thursday, 31 October. While David Jones (ASX: DJS) and Myer (ASX: MYR) operate within the premium department store sector — as opposed to the discount department store sector — they too are suffering from poor consumer sentiment and price deflation.
Meanwhile, the continued good performance of the Coles division which grew sales by 4.9% despite 2.5% price deflation, will have investors wondering if further damage is being done to Metcash (ASX: MTS) from the continued battle between Coles and Woolies for market share.
Despite Wesfarmers large size and market share, the number of different operating units allows the conglomerate to continue to report impressive growth. With a number of avenues to expand its business and a high quality management team, Wesfarmers is definitely one for the watch list.