The share price of investment and retail conglomerate Wesfarmers Ltd (ASX: WES) is down 2.2% to $41.04 in morning trade after the company revealed non-cash write-downs of $1.1 billion to $1.3 billion against the valuation of its discount Target superstore business.
It also announced non-cash impairments of $600 million to $850 million against the value of its Curragh coal business. The company commented that the value of the Curragh business remains sensitive to a coal price that could swing substantially in the future with scope for it to be revalued to the upside. The tough conditions for coal markets have been no secret for a long time now and the coal price is something Wesfarmers has little control over.
However, the poor performance of the Target business is a concern with the group now forecasting that Target will produce an earnings loss of around $50 million in the current financial year. Wesfarmers is also expecting to take restructuring costs and provisions of approximately $145 million as it invests in an attempt to execute a decisive turnaround for the Target business.
For investors the good news is that Wesfarmers' Coles supermarkets business continues to deliver strong same-store sales growth, while its Bunnings home improvement business is performing superbly with a strong outlook based on a dominant competitive position.
Despite today's news of some short-term pain, I would still prefer the long-term outlook for Wesfarmers over its struggling rival supermarket operator Woolworths Limited (ASX: WOW).
