Wesfarmers' British stores strike trouble

Wesfarmers' plans to roll out Bunnings across Britain are in doubt. Photo / AAP

Wesfarmers' plans to roll out Bunnings across Britain are in doubt after it was forced into A$1.3 billion in first-half writedowns, due mostly to the poor performance of the British hardware business.

The Perth company said it was reviewing plans to rebrand its Homebase stores in Britain and Ireland, and would put more money aside for potential closures after the 200-plus-outlet chain failed to meet expectations since its A$705 million acquisition in February 2016.

The news sent Wesfarmers' shares tumbling as much as 5.2 per cent and led analysts to suggest a swift and costly exit from Britain was likely.

"The market is likely to begin pricing in an exit of BUKI [Bunnings UK & Ireland] under a new Wesfarmers senior management team, which is keeping all options on the table," Citi retail analysts wrote. "The $1.8b of lease costs will be the key concern for investors in the event that an exit occurs."

Citi calculated the impact of an exit at A$1.60 a share, with a A$70m provision announced yesterday likely to mean 20 to 40 store closures.

The A$1b writedown against BUKI also includes a non-cash impairment of A$795m, a A$66m writedown in the value of excess and unsuitable stock, and a A$92m tax asset writedown.

Only 19 Homebase stores have been rebadged, and Bunnings group managing director Michael Schneider said further changes were on hold after initial sales growth moderated over the northern winter.

"We will continue to monitor the profitability of the first tranche of pilot stores over the remainder of the 2018 financial year."

That work, which includes consideration of smaller shops alongside the warehouse stores, will occur under new BUKI boss Damian McGloughlin, who joined from market leader B&Q and replaces Peter Davis, who is retiring.

Wesfarmers will announce its revised approach at a strategy briefing day in June.

Wesfarmers, which reports its first-half results on February 21, said BUKI was expected to show an underlying earnings loss before interest and tax (ebit) of A$165m. Citi had previously forecast a A$37m ebit loss.

Wesfarmers shares were down $2.08, or 4.7 per cent, at $42.07 yesterday - a three-month low.

Wesfarmers, which has also seen its Coles supermarkets fall behind rival Woolworths in terms of sales growth, will also make A$306m in non-cash impairments against its struggling Target department stores in Australia. Target is expected to report first-half earnings before ebit of A$33m, up 13.8 per cent.

- AAP