Is the Kmart hype over? Growth stumbles, earnings decline in Wesfarmers half-year result

Wesfarmers operates 531 Kmart stores across New Zealand and Australia. Photo / File

Kmart sales declined 3.8 per cent in its first-half year of trading but the retailer's parent company says it is well positioned for the future.

The popular discount department store scrapped its range of DVDs in the six months ended December 31 which has been blamed for its slump in profit after several years of consistent growth.

Kmart has become a pivotal earner for Wesfarmers, the retailer's Australian parent company, since its demerger from Coles last year.

Kmart earnings decreased to AU$383 million (NZ$400m) in the half-year period, down from AU$398m posted a year earlier. Its revenue was flat - up just 0.8 per cent to AU$4.6m.

Weaker sales of apparel and lower growth in non-seasonal products could also be attributed to the decline in sales over the six-month period, Wesfarmers managing director Rob Scott said in a statement released to ASX this morning.

"Despite these challenges customer feedback remained strong and was reflected in increased units sold during the half," Scott said.

Wesfarmers said Kmart experienced strong double-digit growth in online sales, supported by the extension of its click & collect service and the introduction of its buy now pay later offering in Australian stores.

During that time it opened three new stores and refurbished 20 others.

Wesfarmers operates 531 Kmart stores across New Zealand and Australia.

Kmart is set to open a string of stores throughout New Zealand this year, including in Rotorua, Invercargill and Auckland's Sylvia Park. Last year, it opened new stores in Queenstown and Lower Hutt.

The company said the retailer would continue to focus on "relentlessly pursuing lowest cost" and improving the quality of products it offers in second half of the year.

It is also focused on growing the online arm of its business.

Wesfarmers, which also operates Officeworks and the Bunnings network in New Zealand and Australia, posted an overall AU$4.53m net profit after tax.

The profit included an AU$3m gain from discontinued operations, the Coles demerger and the canning of Bengalla and Kmart Tyre and Auto Service. Its net profit from continuing operations increased to AU$1,080m, up 10.4 per cent in the first six months of the year.

The past six months had a been a period of significant change for Wesfarmers, Scott said, adding he was pleased by progress the company had made.

Revenue for Bunnings Australia and New Zealand stores increased 5.2 per cent to AU$6.9m for the half-year. Earnings before tax increased by 7.9 per cent to AU$932m.