Wesfarmers (WES) has surprised this morning by revealing plans to write-down the value of its Target department store chain and its Curragh coal mining business in Queensland by more than $2.2 billion.
The news, made in an announcement well before trading, came as reports surfaced of confusion in the Target chain as it starts to merge its operations with those of the larger and better performing Kmart.
On top of the massive write-downs, Wesfarmers revealed $145 million in redundancy costs at Target and a trading loss for the financial year of $50 million as profits are sacrificed to clear unsold stock at the weakly performing chain.
Wesfarmers said it would take a non-cash impairment of up to $1.3 billion (pre-tax) on its Target business, mainly on the value of goodwill. It is in fact the second write down of goodwill at the retailer – in July 2014, Wesfarmers revealed a $600 million charge.
Wesfarmers will also take a non-cash impairment of as much as $850 million (pre-tax) against its Curragh coal mining and export operation in Queensland’s Bowen Basin.
"Curragh’s recoverable value remains very sensitive to future currency and export coal price assumptions, and low cost production provides scope for improvement in financial performance should coal revenues improve," Wesfarmers said in a statement.
CEO, Richard Goyder said the write-downs “reflect more difficult market conditions in both Target and Curragh, but we remain confident that operationally we have the right plans to improve future performances over time”.
“Whilst Target has made operational progress in recent years, market competition and disruption has continued to accelerate, including from the very strong performance of Kmart," he said.
Mr Goyder said the write-downs were non-cash, but Wesfarmers was unable to offset the Target impairment against the higher values for other parts of the Coles business because of the way the write-down had to be done.
Wesfarmers shares closed at $41.97 on Tuesday.
