Wesfarmers to continue grocery price war

The supermarket price wars seem far from over, with Wesfarmers chief Richard Goyder looking to increase Coles' sales and cut costs further.

Wesfarmers announced on Thursday that it had increased its first half profit by nine per cent, led by earnings growth from its Coles and Bunnings chains.

The Coles supermarket chain increased its earnings by 15 per cent to $755 million as more shoppers walked through the doors.

But Mr Goyder said the turnaround at Coles was far from complete and the grocery store chain would continue to cut costs and increase sales.

"Over the coming years we want to continue to improve the profitability of the business, hopefully though driving sales as well as greater efficiency particularly through the supply chain," he said.

But Mr Goyder denied concerns that Coles was cutting its prices at the expense of its suppliers and said that since it acquired the business in 2007 it had worked hard to get "price trust" back for its customers.

"Australian consumers for too long have worn higher and higher prices for food and groceries in this country, above the rate of inflation," he said.

"And in fact, if you will recall, the Rudd government considered a food price inquiry in 2008.

"What Coles has done over a period of time is reduce prices for customers and we forced others to follow and that's been a very good thing for consumers."

Overall Wesfarmers made a net profit of $1.29 billion in the six months to December 31, up from $1.176 billion in the previous corresponding period.

Its retail business earnings were up 9.4 per cent to $1.705 billion but the group's resources division suffered a 63 per cent slide to $93 million.

The group's discount department chain Kmart performed strongly during the half, with earnings up 24.9 per cent to $246 million thanks to sourcing improvements, reduced sales periods and strong transaction growth.

Hardware chain Bunnings increased earnings by seven per cent as it continued to expand its store networks opening seven warehouses, five smaller format stores and three trade centres during the half.

However, Target's earnings fell 20.4 per cent to $148 million as the implementation of the chain's transformation plan and falling prices in electrical and entertainment categories took their toll on the business.

The fall in Wesfarmers' resources arm was blamed on falling coal prices, the high Australian dollar and wet weather at its Curragh mine in Queensland.

IG Markets analyst Evan Lucas said the result had come in on expectations and the interim 77 cent fully-franked dividend - up from 70 cents - should please shareholders.

"The turnaround growth in Coles and Kmart has translated into 15.1 per cent growth in EBIT for the retail division and throws the gauntlet down to Woolworths to match the growth in its stores," he said.

"Coal continues to be a stumbling block for Wesfarmers with revenue down 24 per cent to $826 million as export prices and the high Australian dollar bites into profits, adverse weather has not helped this figure either."

Wesfarmers shares closed 46 cents, or 1.2 per cent, higher at $38.88.

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