‘Unacceptable’: This retailer is costing Wesfarmers millions
Wesfarmers boss Rob Scott says the performance of struggling e-commerce marketplace Catch is unacceptable, but the retail giant is tipped to face an uphill battle to turn around the brand, which stands out as a sole blight on its balance sheet.
Industry analysts grilled the Wesfarmers executive team last week about how much pain they were prepared to put up with when it came to Catch, which has proven a headache since shortly after Wesfarmers bought it for $230 million in 2019.
Wesfarmers confirmed last week that the gross transaction values on the Catch platform declined by 26.8 per cent in the six months to December, and the business posted a loss of $108 million for the half.
That included $33 million in restructuring costs as Wesfarmers embarked on redundancies and asset write-offs within the business, while moves were under way for a widespread reduction of costs.
Management blamed the poor results on a slowdown in e-commerce demand after COVID, which resulted in “surplus inventory and an unsustainable cost base” within the business.
Catch had invested heavily in inventory, fulfilment capacity and staff during the coronavirus-induced surge in online retail, but now spending conditions are slowing.
“We clearly over-invested,” Scott told analysts.
Stock watchers are running out of patience with the operation, with Wesfarmers’ initial investment in the company together with its cumulative losses now approaching $500 million.
“What can we as investors or market followers expect going forward – how much pain you prepared to put up with?” Bank of America’s David Errington asked Scott on Wednesday.
Scott said he believed earnings in the business would improve considerably in the second half of the 2023 financial year, but he agreed that Catch’s fortunes would have to turn around swiftly, or Wesfarmers would have to cut back on investing in the business.
“It’s not good enough, it’s unacceptable, we’re not satisfied with this at all. You can expect that we are taking very serious action to improve the financial performance,” he said.
“It’s going to be a disappointing year for Catch, but it will need to improve, it’ll need to improve materially in the years ahead, or we just simply won’t keep investing at the current level.”
Wesfarmers says its short-term goals include reducing overhead costs, which includes a reduction of its head count as well as running clearance activity to get rid of excess stock over the next few months.
The group will do this during a period in which pure-play online retail is slowing.
Online-only furniture retailer Temple & Webster was one example of an e-commerce business punished by investors last week, with shares plummeting 25 per cent after the company revealed a 46 per cent drop in half-year profits.
This could make the task of Catch’s turnaround all the more difficult, analysts fear.
“We believe the turnaround will be challenging given the very strong competition Catch faces from larger global marketplaces and omnichannel retailers, and the sharp shift in customers from online back to stores,” Citi analyst Adrian Lemme said in a note to clients.
Barrenjoey moved its price target from $49 to $48 after Wesfarmers’ results last week, pointing out that although the company delivered a strong first-half result, Catch’s growing losses were a lowlight.
“We lift our department stores and healthcare forecasts on better-than-expected results, which is more than offset by higher Catch losses (up from $50 million to $180 million), with Officeworks and [energy business] WESCEF lowered slightly,” consumer analyst Tom Kierath said.
Wesfarmers shares finished last week up by more than 3 per cent, after sharing more positive trading outlooks for discount department store Kmart and DIY giant Bunnings.
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Source: Thanks smh.com