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Wesfarmers upbeat on UK Bunnings

 

Wesfarmers chief executive Rob Scott has taken a more positive stance on his company's struggling Bunnings venture in the UK despite another dramatic fall in sales.

Bunnings UK and Ireland suffered a 13.5 per cent slump in sales in the first three months of 2018 compared to a year earlier, with Wesfarmers blaming poor weather, including the "Beast from the East" cold snap that chilled Europe in March, for the fall.

In February Mr Scott had said all options were on the table under a strategic review of the UK and Ireland business, which has fuelled speculation that they would be offloaded.

But on Thursday Mr Scott said there had been considerable improvement in key areas of the business, which put it in a good position for the peak spring season.

"For the first time since we've owned the business, we have seen discernible improvement," Mr Scott told reporters.

"We are in a much better shape than a couple months ago."

He said the cold snap across Europe significantly hurt trade at the UK stores, the majority of which still trade under the Homebase banner they bore when Wesfarmers bought the British retaile chain in 2016.

"We are feeling more positive about the performance and outlook for that business and certainly we won't let one-month of poor weather influence our decisions in the longer term," Mr Scott said.

He admitted there was a long way to go for the business, which incurred $1.02 billion in impairments in the first half of the financial year.

Mr Scott also defended the group's plan to demerge Coles into a separate ASX-listed company after Wesfarmers said in March the move would allow it to focus on the growth in its other businesses.

He said Coles would still deliver growth for shareholders as a separate entity, and new stores would be needed to meet Australia's strong population growth.

Coles achieved comparable sales growth of 1.3 per cent in the third quarter, adjusted for the earlier timing of Easter in 2018, which was just below market expectations.

In the past year the supermarket's sales growth has lagged that of arch-rival Woolworths, which reports its quarterly sales next week.

Mr Scott said Coles will return to earnings growth in the second half of the financial year, after earnings fell in the first half due partly to discounting and weaker fuel earnings.

Bunnings Australia and New Zealand was the best third-quarter performer for Wesfarmers, with comparable sales lifting 7.7 per cent.

Kmart's comparable sales were up 7.7 per cent and Target's comparable sales were down 2.6 per cent.

Shares in Wesfarmers fell in morning trade but closed 27 cents, or 0.6 per cent, higher at $43.13.