Wesfarmers Ltd

ASX:WES

Earnings Call Transcript 2018-Q3

[Operator]

Ladies and gentlemen, thank you for holding, and welcome to the Wesfarmers Quarterly Retail Sales Briefing. [Operator Instructions] This call is also being webcast live on the Wesfarmers website and can be accessed from the homepage of wesfarmers.com.au. I would now like to hand the call over to the Managing Director of Wesfarmers Limited, Mr. Rob Scott.

[Robert G. Scott, Managing Director]

Thank you very much, and good morning, everyone, and welcome to the Wesfarmers Third Quarter Retail Sales Briefing. I will provide an overview of our sales results; following which, Anthony Gianotti, John Durkan, Mike Schneider, Guy Russo, Ian Bailey and myself will be available to take any questions.The sales performance of the group's retail businesses during the third quarter was pleasing with most businesses demonstrating improved sales momentum. Starting with Bunnings Australia and New Zealand. Total sales for the quarter were $3 billion, up 8.9% on the prior corresponding period. Store-on-store growth for the quarter was 7.7%, resulting in store-on-store growth of 8.6% for the financial year-to-date. The results for the quarter demonstrated the strong momentum within the Bunnings business and reflected continued execution of its strategic agenda as well as favorable seasonal conditions in some states.In the United Kingdom and Ireland, Bunnings recorded sales of GBP 211 million or $374 million for the quarter, a decrease of 6.5% in dollars on the prior corresponding period. For the financial year-to-date, sales decreased 12.9% to $1.2 billion. The business delivered improved trading results in the early part of the quarter but was offset -- but this was offset by impact of severe weather in March. The BUKI team, led by Damian McGloughlin, have made very good progress to improve retail execution in Homebase, focusing on store standards, inventory control, product pricing and digital strategies. And the stores are now well positioned for the arrival of the peak spring trading season. The strategic review of BUKI is ongoing, and as previously indicated, an update on the progress of this review will be provided at our Strategy Briefing Day in June.Moving to Coles. Headline food and liquor sales were $7.8 billion for the quarter, up 1.9% on the prior corresponding period. Comparable food and liquor store sales increased 0.9% for the quarter and 0.9% for the financial year-to-date. As signaled at the time of the half year results announcement in February, the reported comparable sales growth for the third quarter was adversely affected by the timing of New Year's Day. Adjusting for the impact of the timing of New Year's Day and Easter in the quarter, comparable food and liquor sales increased 1.3% for the quarter compared to 1.1% on an adjusted basis in the second quarter. It's worth noting that within this result, the impact of Easter was negligible.The sales results for the quarter demonstrate continued improvement in the performance of the core Supermarkets business. Food and liquor deflation was 0.7% during the quarter, resulting in total deflation of 1.3% for the financial year-to-date. Lower supply-driven deflation across fresh produce and meat and an increase in dairy inflation during the period resulted in a reduction in reported deflation relative to the second quarter. Coles continued to deliver improvements in customer satisfaction metrics during the quarter, particularly in the areas of customer service, range and availability, supporting continued growth in customer transaction. The launch of Coles' new brand positioning, Good things are happening, and the relaunch of Sports for Schools reflected the investments being made for the long-term success of the business, which also include continued investments in the digital offer.In the convenience business, total Coles Express sales including fuel for the quarter were $1.3 billion, a decrease of 8% on the prior corresponding period due to lower fuel volumes. Comparable fuel volumes decreased 15.9% for the quarter, and Coles Express is continuing to work with its alliance partner to provide a competitive and sustainable fuel offer for the future. Despite the declining fuel volumes, comparable convenience store sales increased 1.3% for the quarter and 0.7% for the financial year-to-date.Now turning to our Department Stores division and commencing with Kmart. Kmart's total sales for the quarter were $1.2 billion, an increase of 10.2%. Comparable store sales increased 7.7% for the quarter or 6.8% after adjusting for the earlier timing of Easter in 2018 financial year. For the financial year-to-date, Kmart's comparable store sales increased 6%. These strong results reflect Kmart's price leadership position in the market, which resulted in all categories, with the exception of family entertainment, achieving double-digit unit growth during the quarter.Kmart opened 3 new stores, including 1 rebranded from Target during the quarter. Target's total sales for the quarter were $544 million, a decrease of 2%. Comparable store sales decreased 2.6% or 3.2% after adjusting for Easter, resulting in comparable sales decline of 5.5% for the financial year-to-date. Target's focus remains on improving fashionability and the quality of sales. The impact of range reset of toys and general merchandise offset improved sales performance across online, womenswear, menswear and home during the quarter.And finally, to Officeworks. Total sales for the quarter were $598 million, up 7.2% on the prior period. For the financial year-to-date, total sales increased 8.8%. Officeworks sales for the third quarter were unfavorably affected by the earlier timing of Easter this year. It is pleasing to see Officeworks continue to deliver strong sales growth in a competitive market. This reflects the business's market-leading omnichannel proposition and continued investments to improve the customer offer.Now that's it for me for the moment. We'll be very happy to take any questions, and I'd just remind you all that this is a sales call, so as flagged earlier, we'll be leaving the more detailed commentary on the Coles demerger and the BUKI strategic review to our briefing day in June. So with that, happy to take any questions.

[Operator]

[Operator Instructions] Your first question today comes from the line of Michael Simotas from Deutsche Bank.

[Michael Simotas, Research Analyst]

First question from me is on Bunnings ANZ. I mean, there's been a lot of talk in the media about slowing housing activity as well as weaker house prices. I was just hoping you could give us some color on what you're seeing in your category mix as well as DIY versus trade and whether you're seeing any signs of a slowdown there given the headline numbers are still coming through very nicely.

[Robert G. Scott, Managing Director]

Mike, can you please talk to that?

[Michael Schneider]

Yes. Thanks, Rob. Michael, look, I think we've sort of talked for a long time about the fact that the mix of business in Bunnings does play in between commercial and consumer, and it also has the blend of necessity and discretionary. And when there is consistent housing churn or a stronger housing market, we certainly see some benefit from the work that people do on their home before they sell it and the work that people do when they move in to a new home. But equally, we have a lot of opportunities and continue to see strong growth in areas like alterations and additions. So in a couple of the markets where there's been a bit more speculation about housing sales starting to come off, we do see customers sort of switching from that sort of buy-sell cycle to improving the homes in which they live. So in terms of category mix and sort of regional performance, it sort of tends to stay fairly consistent with what we've seen over the medium term.

[Michael Simotas, Research Analyst]

Okay. So it sounds like the misses there is a little bit of change in the mix, but there are pluses and minuses and then the outcome doesn't change very much.

[Michael Schneider]

Absolutely. And we've seen that through various cycles over the last calendar years.

[Michael Simotas, Research Analyst]

Yes. All right. That's useful color. And then second question from me on Coles. So on a calendar-adjusted basis, there's been a little bit of an improvement in sales momentum, I guess, but that coincides with some improvement in deflation. So it sort of looks like an improvement in the market may have driven some of that. Firstly, I was just hoping you could comment on that and then maybe give us a little bit of color on what you're seeing around volume growth, transaction count, basket size, et cetera.

[John Durkan, Managing Director of Coles Division]

Yes. Thanks, Michael. It's John here. So we're seeing our transaction growth still continuing to grow, growing slightly less than it did in Q2, and we've seen an increase in basket, so change in our mix. That change in our mix is really driven out of probably 3 things. One, we're seeing less deflation in our fruit and veg business in particular as we've gone through the quarter. We're -- we've had a strategy of becoming more effective in our promotion, so our promotional participation is coming down. At the same time, our Every Day pricing sales are going up. And we've seen -- as you've seen from our 0.7 deflation, we've seen a -- still a deflationary period, there's still a net investment in prices. So we're quite pleased with the transaction growth and now a basket that's going up. So I think a reasonable shape to the business.

[Michael Simotas, Research Analyst]

Okay. And when you say basket going up, you sort of spoken a little bit to inflation. What about items per basket? Has there been much of a change in that dynamic?

[John Durkan, Managing Director of Coles Division]

There's not been a material change in that number, no.

[Operator]

Your next question today comes from the line of Rob Freeman from Macquarie.

[Rob Freeman, Analyst]

Just on Bunnings ANZ. I think there's some language around continuing to focus on value and better experiences for the customer. I was just wondering, is that an OpEx type comment in terms of staff ratios in-store? Or should we see Bunnings sort of adapt to embark on a bigger refurbishment program on the CapEx side please?

[Michael Schneider]

Just -- thanks, Rob. It's Mike here. It's, bear in mind that it's a sales call, probably something we'll cover off a little bit more in June. But I think we continue to sort of model investments in our gross margin coming down so that we can continue to offer even greater value for customers. And from an experience point of view, the work that the team is doing on training, on improving roster coverage for trading hours in stores is ongoing business as usual work. It's just really pleasing to see the way the team are working to deliver that.

[Rob Freeman, Analyst]

So there's no explicit target for higher employee hours in each store or anything like that?

[Michael Schneider]

No.

[Rob Freeman, Analyst]

Okay. Just in the convenience business, obviously, you continue to work with the partner there. I'm just wondering if we should expect any sort of update on that relationship. Is there anything strategically that you can do to start to improve fuel volumes, et cetera?

[John Durkan, Managing Director of Coles Division]

Yes. It's John here. So we're working with our partner closely in terms of the business going forward, the long-term business going forward. And we can touch on that perhaps at a later date, maybe at our June Strategy Day. But in terms of what does the business look like going forward, I think for the -- for Q4, we're probably seeing more of the same in terms of our volume stabilizing as they have done in this quarter. And then, of course, as we get into next year, we're cycling the numbers of last year, so we should see a flat performance year-on-year going into Q1 of next year.

[Rob Freeman, Analyst]

And then just finally, I was just wondering what the deflation statistic was excluding fresh please.

[John Durkan, Managing Director of Coles Division]

I haven't got that broken down in the business, but it's predominantly -- with some confidence, I would say this is all predominantly fresh driven in terms of supply side deflation.

[Robert G. Scott, Managing Director]

And actually -- so John is right to say that it was broadly in line. So deflation ex produce broadly in line. So no, no material change in that quarter-on-quarter.

[Rob Freeman, Analyst]

And when you say broadly in line as in the amount of deflation...

[Robert G. Scott, Managing Director]

In line. Sorry, in line.

[Rob Freeman, Analyst]

Sorry, what was that?

[Robert G. Scott, Managing Director]

Sorry. So assume that deflation excluding produce was the same in the third quarter versus second quarter. So the change that you're seeing to overall deflation was predominantly driven by produce.

[Operator]

Your next question today comes from the line of David Errington from Merrill Lynch.

[David Errington, Head of Consumer Research for Australia and Asia]

Rob, can I ask you this question? I know it's probably maybe Mike, but I'd like to ask you because I'm trying to work out the message you're trying to give with Bunnings U.K. and Ireland. You said that there had been improvement, and you highlighted the number. But that was in Aussie dollars. You didn't highlight the number in pounds, which is the -- our constant currency, which is the way we look at things. And when you look at Slide 6 of your pack, you actually give the actual numbers. And the store-on-store sales growth in pound doesn't give a pretty number. I mean it shows that you're running at minus 15.4% like-for-like, which means it was a pretty dreadful number. Now you also mentioned the weather, so I'm trying to get what your message is. You said that there'd been underlying improvement. Well, can you tell us what actually that improvement was? Can you tell us some, maybe the numbers, what the numbers would've been excluding the poor weather? And can you explain to us why we should accept that poor weather is an excuse when, I know it was extreme, but weather in the U.K. is always a bad -- it's a risk in whenever an Australian business goes into a market like the U.K., weather is always going to be a factor. It's a risk. So why should we discount the fact that weather had a bad outcome this time?

[Robert G. Scott, Managing Director]

Yes. Thanks, David. So look, I can touch on this, and Mike can provide more information. What we have set out, as you noted, the sales growth percentages and the change both in U.K. in pounds and also in Australian dollars. And you're absolutely right, the more relevant metric is the local currency metric, which is broadly in line with what is a 15% down on same-store sales growth that we saw in the second quarter. Just to provide a bit more color, the -- and whilst we would not normally call out sales growth by month, I think it's informative in this example that the types of sale -- the decline in sales we saw through January and February were in the order of 5% to 8% negative. And so that was driven by, we believe, better execution within the stores, better promotional activity and also particularly, better price management. I think we've talked before about some of the decisions made last year around pricing were causing us a fair bit of pain in terms of not just margin but also sales. So at negative 5% to 8% through January to February, and then coming into March, we were in excess of 20% down. And we called out the positive benefits of weather in there as a result, and I guess we're just -- and this is not us alone, I think you can follow the commentary in the U.K. market and all the commentary has highlighted that March was a particularly bad month. So that kind of gives a bit of context between what happened in the first couple of months versus the last month.

[David Errington, Head of Consumer Research for Australia and Asia]

It sounds like the Bunnings business -- the Bunnings brand is doing well. Is that a fair call? I mean, Bunnings itself -- it's Homebase, which is the problem, but the Bunnings has got great traction. Can you give a bit of an update on that?

[Robert G. Scott, Managing Director]

Well, at a high level, you're right, that a lot of the impact on sales has been driven by the problems that we've experienced within the Homebase business. But what was trying to call out on this call is that Damian McGloughlin and the team had made some very significant progress within the Homebase business over the last quarter. Now unfortunately, when you're confronting with a 20% plus sales decline in 1 month, the numbers don't look great at a quarterly level. But I'm really pleased with improvement we've seen in Homebase as it -- at the gross margin level through better pricing, better promotional activity, improved stock controls. That's starting to have a benefit. You're right that we are seeing better sales growth within the 23 Bunnings stores. We called out previously that the sales were -- sales growth was not as strong through the winter months as it was through the summer months, but we're still been achieving in excess of 10% growth. And something that's probably worth pointing out is that our comp store numbers are only in relation to Homebase. So the comp store numbers don't take into account the uplift in sales that we see upon conversion of the Bunnings stores. That's obviously included in the headline numbers, but as you would know, the headline numbers also include the lost sales from the store closures. Hopefully that provides a bit more color.

[David Errington, Head of Consumer Research for Australia and Asia]

That was really very good, very excellent. Just a clarification. I'm trying to get my head around on the convenience volumes where, John, you were saying that we've seen stabilization. I'm just trying to get my head around what that means because the third quarter '17, again on Page 6, volume was down 22% in the third quarter '17, and it was down some 15.9%, 16% third quarter '18. How can that be called out a stabilization because stabilization means that for me, when it's dropped, it's just flat on that drop, whereas this is another big drop on what was already a big drop. So I'm just curious as to how you can call out that volumes are stabilizing when we're seeing big drops on big drops.

[John Durkan, Managing Director of Coles Division]

David, it's John. So what I was referring to was that on a quarter-on-quarter basis, we're seeing weekly volumes that are similar. So we're seeing a stabilization. And if you take a seasonal adjustment because of the summer holidays and Easter holidays in the quarter, we're seeing an underlying volume that is pretty much stable week-on-week now. So it's not...

[David Errington, Head of Consumer Research for Australia and Asia]

How does it work though, John? How does it work? I mean, I'm trying to get my head around that because it's sort of like -- because you had a go at me on the call last time for doing third quarter on second quarter when you should look at third quarter on third quarter. And I would've thought that the weekly volume would have to be lower this quarter relative to what the weekly volume was third quarter on '17, given it's down 16%.

[John Durkan, Managing Director of Coles Division]

Absolutely. And we're not saying that it's not down year-on-year. And I don't -- we're not disputing that in any way, shape or form. What I'm saying is that we're seeing a stabilization in our business in terms of the weekly trend.

[David Errington, Head of Consumer Research for Australia and Asia]

Okay. I still don't quite understand, but I might take it off-line.

[Operator]

Your next question today comes from the line of Shaun Cousins from JPMorgan.

[Shaun Robert Cousins, Senior Analyst]

My first question, just a bit of a clarification. Rob, you made the point that deflation was -- sorry, deflation ex produce was flat. Was deflation ex fresh flat as well? Just given that you've called out meat, which is obviously not produce, as an area that sort of moved around. So maybe just in that, I guess, traditional Dry Grocery, was that still flat third quarter, second quarter?

[Robert G. Scott, Managing Director]

Yes, that's correct.

[Shaun Robert Cousins, Senior Analyst]

Yes. Okay. No, that's sort of fine. And further to John, just on Coles, how is sort of execution performing in that you've added staff in stores now but it doesn't seem to be delivering a tremendous sort of uplift in sales? Is it that Woolworths has momentum, and it's taking time for customers to get accustomed to the increased staff you've got there? I'm just sort of curious that you've done some initiatives even like the Sports to Schools sort of program that haven't really resonated from a uplift in sales given you've got fairly undemanding comps. I'm just sort of curious how happy you are with the staff that you've added and with the promotional effectiveness that you've been implementing in this quarter please?

[John Durkan, Managing Director of Coles Division]

Yes. Thanks, Shaun. We're pleased with our customer dissatisfaction measures. So on our -- the way we measure customer satisfaction, this is the best quarter we've seen in 7 quarters in terms of the weekly measures that we get through Tell Coles. So from that basis, we're seeing customers are as happy as they've been in terms of shopping at Coles. So that's a real positive. In terms of the comp growth, we're -- it's a move on from last quarter in terms of our comp growth, and it's completely in line, I guess, with what I said back in January in terms of us seeing an improvement in this quarter. So I think we're in the place that we wanted to be, and of course, we like more, but we're going in the right direction for sure.

[Shaun Robert Cousins, Senior Analyst]

Okay. And maybe just for Ian, if he's on the line, just in terms of Kmart. I'm just curious where your market share sort of gains are coming from. Target has been indicated as toys and gross margin have been weak, whereas for Kmart, Home and Kids growth -- sorry, toys and general merchandise had been weak, whereas for Kmart, Home and Kids general merchandise have been strong. I'm just curious, maybe some of it is coming from Target, which has been a theme. But there's also -- obviously a lot more going on than this. And can you just talk a bit about where you see the market share gains that you are achieving sort of coming from, particularly given you're also deflating the categories to some degree? Well, you're certainly leading on price, so you're actually winning volume share from someone too. Who are you winning it from? And why?

[Ian Bailey, Managing Director of Kmart]

Yes. I think you probably just answered it. So we're winning it because of price. That's the anchor of our strategy. And we put a lot of energy in the last 12 months in maintaining and, in fact, improving our price position in the minds of customers, and we've done that by being the lowest price. So it's founded on fact. And where are we getting that share from? I'd say from everyone. So when you look at a shopping center, and you go there, anybody who sells homewares, we're taking some sales off them. Anybody who sells clothing, we're taking some sales off them. And anybody who sells toys, we're taking some sales off them. So it's pretty much across the board. I mean, if you say, where are the areas where that's not true? We sort of called out home entertainment is an area where we've been a little slower in things like DVDs. We're actively, actively pulling back on that category. I mean, I don't see that's the one we're going to be playing in the long run because we don't see that we can be really good at it compared to some of the other things that we do. So we're in this nice position at the moment, where across the books, we're seeing really good unit growth, which is a response to improving product and low prices.

[Shaun Robert Cousins, Senior Analyst]

And how optimistic are you about being able to replicate the uplift in sales in Target conversions that you've achieved so far? I think you've only done a handful. You did one this quarter, but I think the way the business seems to be running in department stores is Target's less of a focus, we should see more conversions from Target to Kmart going on. Are you confident that you'll be able to get the sales uplift? Because your sales productivity per store is better than this. Are you confident you'll be able to sort of continue that on as you take on more Target stores in time?

[Ian Bailey, Managing Director of Kmart]

I think it's very early days on conversions. And it's always risky with a small number of stores calling out big statistics because it's a small number of stores, and there's always variability in performance. But we are seeing improvements in sales performance where there's been conversions, which is what you'd expect. The question will be, how does that perform over time? Is it the start of a longer growth period? Or is it just an initial blip and then stabilizes? So we're still early days in all of them, and we're watching and learning very closely.

[Operator]

Your next question today comes from the line of Ben Gilbert from UBS.Our next question today comes from the line of Bryan Raymond from Citi.

[Bryan Raymond, Vice President and Analyst]

Just following on, on some of the questions around Coles and some of the investments you've made and the impact that's seen. So Sports to Schools was brought up in a couple of prior questions. Just interested in the investment you made in that program. In aggregate, some suppliers in Coles seems significant, but I'm interested in how much that investment has been incremental versus taking away from maybe other investment you might have made in promotions or any day type programs. Because the success of the programs, as I said back, obviously, has been very mixed. So I'm just interested in how much that investment has been incremental. And then how pleased are you with the performance of that program in aggregate?

[John Durkan, Managing Director of Coles Division]

Yes, thanks. The -- from a customer and community and school basis, it's been a very successful program as it was many years ago. So our engagement scores have all gone up, so we're pleased with that. As an investment, it's part of our annual portfolio of investment. So it fits into our pricing and our promotions plus our other activity like My Kitchen Rules and MasterChef. So it's just one of many activities that fits into the overall year. And we don't look at it from an incremental or otherwise basis. We look at it as an overall part of an investment that we're making in the customer, and this is just one part of it.

[Bryan Raymond, Vice President and Analyst]

Okay. Maybe we can just talk about some of the deflation trends you're seeing in Coles as well then. Just on some of the notable products we're just seeing price [ rise ]. So you've seen white bread, fresh chickens. There's been also the container deposit scheme in New South Wales. Given your competitors have largely moved with you on those price rises, and obviously, CDS is something outside of your control, how should -- how is the sales -- level of sales performance been in those areas, not in isolation but in aggregate? Have you seen overall sales actually lift as volume hasn't fallen to offset the price increase? And I'm just interested in sort of how you're viewing some of these unprofitable SKUs, which I think some of these would fall into that basket, as you unwind some of those price points which don't feel to be overly sustainable. So just -- and then if you can put that in context of how that relates to the overall deflation measures, if it's material or not.

[John Durkan, Managing Director of Coles Division]

Yes, sure. So you've named a couple of products there. We've roughly dropped 500 products in price in the quarter, and of course, we put a number up that we do on a regular basis. We've made a net investment in our pricing, and you can see that come through deflation in our numbers. We don't comment on individual products because as the price of roast chicken went up, the price of salmon came down. And therefore, we're always looking at giving customers different items across the store to be able to meet their needs on a weekly basis. So it -- there's nothing abnormal about our pricing in the quarter that's different to the previous quarters, frankly. It's broadly the same. And roughly, our deflation for the year is slightly ahead of where it normally is year-to-date if you take the last 8 years. But there's nothing unusual about our pricing strategy in this quarter.

[Bryan Raymond, Vice President and Analyst]

All right. Okay. And then just -- maybe just a final question also on Coles. Just around your overall prioritization within the business. And I know we're not talking about the demerger today, so I won't go into that directly. But just interested in your overall prioritization of sales momentum and restoring that compared to managing inventory. We're hearing a lot of comments from suppliers around inventory particularly in the back half of the week around promotions and trying to manage that down, and overall cost efficiency, which seems all relates to the simplification program. And maybe if you could just comment on store hours as well as part of that investment. Because we're seeing more of a focus, a lot of channel checks are indicating that the focus is not so much on sales, it's more on maintaining earnings and delivering efficiencies through either inventory or cost. So perhaps could you just talk about how you're prioritizing that over the next 6 months particularly during, John, the rest of your tenure and then actually head up that demerger.

[John Durkan, Managing Director of Coles Division]

Sure. Nothing's changed in that respect. So our business is entirely run on improving our sales position. The way the business is structured, it's reliant on the fact that we continue to improve our sales line, both the comp level, particularly our comp level, the sales per square meter level and then, of course, the headline level. We've actually added more resource into our stores to grow our sales in the last quarter rather than less, so we've invested more in customer service. And I think it's one of the reasons that our customer service metrics are the best they've been in the last 7 quarters. And I don't see anything changing between now and the demerger timetable in terms of our focus on the business. Our priority is always and has always been on customers, and the first thing we talked about at a trading meeting on a Monday morning is our customer metrics, and that hasn't changed. And our profit and our margin will be an outcome of those things rather than us focusing on them as a particular line. But on to your second part, on stock. At the beginning of the year, we talked about making the business much more efficient and productive and only wanting to touch our stock once. And we've been trying to make sure that our -- what comes in to our stores goes on our shelves. Our availability metrics have been the strongest they've been in a long while in terms of looking at both from a Coles Online, where we get a true measure of customer availability as it's peaked in stores so we can exactly see those metrics have never been stronger. And our stock in our system is in a great place, and it's where it should be. It's on the shelf rather than in the back room. So we've seen a -- part of our strategy is stockless stockrooms coming to the floor. So I fully expect that the suppliers will be saying to you that the stock going into Coles in total aggregate is less because the management of our stock is much more effective.

[Bryan Raymond, Vice President and Analyst]

And just to confirm, you don't think it's costing you sales, this push for stockless storerooms and stock efficiency particularly around, [ promotional stockroom ], you see no effect on that?

[John Durkan, Managing Director of Coles Division]

This -- so our true measure of our availability comes from our Coles Online business in reality because we see it before any product gets substituted to a customer. And as I said, it's never been in better shape in terms of an underlying metric.

[Operator]

Your next question today comes from the line of Tom Kierath from Morgan Stanley.

[Thomas Kierath, Executive Director]

Just got a question on Coles, on the EBA, has that come through yet? And I guess the reason I ask is I think there was the indication that profits for Coles will be up in the second half, sales growth is running below base growth, and you called out there being a headwind from the EBA. Can you just give us a bit of an update on that please?

[John Durkan, Managing Director of Coles Division]

Yes. Tom, it's John. So our EBA pleasingly got approved by Fair Work at the beginning of this week. As I called out at the half year, it will have a small headwind into the second half. Our sales are slightly ahead of where I said they would be in -- at the half. And therefore, our earnings -- there's no change to our earnings outlook that we gave then.

[Thomas Kierath, Executive Director]

Okay, great. Second one for Mike Schneider, the weather has been pretty favorable. I think last year in New South Wales, it was pretty tough. Can you give us kind of a sense of what the weather did to the comp so we can see what's kind of happening underlying in your business?

[Michael Schneider]

Yes. Thanks, Tom. I think as a lot of us have experienced, there have been some quite favorable weather conditions in some markets. But I guess that's been sort of offset by some less so in other markets as well. I think if you look into the sort of northern parts of Australia, they had some pretty heavy, heavy rain and monsoon weather, and there's probably a little bit of disruption just on the Gold Coast heading into the Comm Games. So look, it certainly helps us, and we always call it out when we see there is a benefit. But it wasn't picture perfect everywhere, but it certainly didn't hurt us in the markets where it was stronger.

[Thomas Kierath, Executive Director]

All right. But you can't give us a 1%, 2% kind of indication on that?

[Michael Schneider]

No. We don't -- I wouldn't normally sort of call that sort of level of detail out. And it sort of does vary a little bit, and you're getting to really sort of detailed answers on sort of days of the week where it's better or not better because of weekend trade. But it was certainly better. Victoria and New South Wales, I would have seen stronger-than-expected performance there but certainly offset a little bit by some more variable weather in other parts of the country.

[Operator]

Your next question today comes from the line of Grant Saligari from Crédit Suisse.

[Grant Saligari]

So on Coles, you've called out a number of metrics that are improving around customer satisfaction, availability. What do you think needs to improve further to get your sales growth at least at market because, at least according to the EBA statistics, which are running at around 2.5% year-on-year growth, Coles is still losing some market share. And I guess even from your own objectives, I think you'd desirably like the sales growth to be stronger than it currently is.

[John Durkan, Managing Director of Coles Division]

Grant, it's John. So we've just got to continue doing what we're doing in terms of investment behind the customer not just in pricing and value but, as you've seen, with our change on our customer communications, a wide variety of things, so adding more team members to our stores, improving our service, improving our availability and bringing new -- to the market some new products. And we've seen a lot of that in Coles brand over the last quarter. But I think the metrics are moving in the right direction to get us sustainable, continued sustainable sales growth. And as you know, we've never focused on our market share. We really did focus on our sales per square meter, which are now on an improving trend, and on our comp sales, which are also on an improving trend. So I would imagine, and I don't have a crystal ball on the market, but from a comp basis, we're heading towards meeting the market on a comp basis for sure.

[Grant Saligari]

Well, that's encouraging. Could you outline perhaps from a dissatisfaction perspective what your customers are still telling you that you need to improve or they're dissatisfied with? And maybe how that metric has been moving over time?

[John Durkan, Managing Director of Coles Division]

Yes. It's a wide variety of things. There's -- customers always want further lower prices. There's always a value aspect to that. And they want to make sure that their shopping is easier. So making sure that it's easy to get in and out of our car parks and be able to get in and around our stores quickly. So the reason we put more team members in is that it's helping our customers get in and out of our stores more quickly. But the metrics have improved across the board in every one that we look at. And therefore, it's a wide variety of things. It's not just one thing that customer is looking for. But always, the 2 things that they talk about are price and convenience.

[Grant Saligari]

And have you seen any improvement from the Click and Collect implementation?

[John Durkan, Managing Director of Coles Division]

Yes, we have. Yes. So our business -- that's the strongest growth part of our business in terms of our sales. And we're now nearly across 500 sites across the country. We're certainly seeing an improved customer satisfaction from a convenience perspective on Click and Collect.

[Operator]

Your next question today comes from the line of Andrew McLennan from Goldman Sachs.

[Andrew J. McLennan, Consumer and Retail Analyst]

First question for Ian. I was just wondering, in relation to the Kmart and Target and the improving trends you're seeing there. It sort of comes on the back of a step-up in -- a long-awaited step-up in household income growth. I'm just wondering whether you would -- whether you're seeing any improving macro beneath that sales performance in department stores.

[Ian Bailey, Managing Director of Kmart]

Maybe I can answer for Kmart. And then, Guy, if you want to add from anything you've seen from Target side. I guess what we're seeing is a continuation of what we're always saying, which is customers really respond to value. So I certainly haven't got any evidence or seen anything which says that customers are more willing to trade up to higher price points because of external factors in the marketplace. If anything, I'd be saying that customers are even more demanding about a higher price than they ever have been. And they're more likely to trade to a lower price item, where they have the opportunity to do so. So I can't say from the Kmart side of things we're seeing any evidence of any real change on that topic.

[Andrew J. McLennan, Consumer and Retail Analyst]

Okay. And Guy?

[Guy A. Russo, CEO of Department Stores Division & MD of Target]

And similar for Target. Nothing is really coming through at least for this quarter. As I called out in the release, we're seeing improvements across where we've improved fashionability. So with women's, men's and home now hitting positive sales and online still doing very well. And nothing from a macro point of view for household income going on.

[Andrew J. McLennan, Consumer and Retail Analyst]

Yes. And Guy, while you're on the line, the store increases at Target, is that still the tail of previous development plans rather than any specific strategy to roll out in more stores?

[Guy A. Russo, CEO of Department Stores Division & MD of Target]

Okay. The new openings, you mean?

[Andrew J. McLennan, Consumer and Retail Analyst]

Yes.

[Guy A. Russo, CEO of Department Stores Division & MD of Target]

Yes. Sure. As mentioned previously, all those new openings have been probably approved some years ago, maybe even up to 5 years ago. Looking forward, that number's decreased considerably on our corporate plan with a significant increase in store closures, and also, we always consider in a store closure as we go through each of the leases when they come up, whether they benefit. If they benefit Kmart from a sales improvement but also in profit improvement, then we would convert them to [indiscernible] demand.

[Andrew J. McLennan, Consumer and Retail Analyst]

Okay. Yes. And a question for John. Just in relation to petrol, it's still an interesting topic given what's happening with your relative pricing. But I'm just wanting to talk about sort of the correlation between petrol pricing and the volume declines and what we're seeing in terms of comparable store sales growth. I know the jury's been out in relation to the value of redemptions, et cetera. But can you give us confidence that the significant declines in volumes in the convenience division and that relative price position has had absolutely no impact on the Coles food and liquor comps?

[John Durkan, Managing Director of Coles Division]

Yes. Thanks, Andrew. The -- all the work that we've done around the stores with the redemptions, and the highest redemptions, we've seen a marginal effect on this. I can't cast iron guarantee and say every site's working the same way. But what I can see from the work that we've done on it, that it's had a negligible effect in terms of our supermarket sales. And the price competitiveness hasn't changed now for quite a period of time. We've been in a similar position for a long period of time now. So I would expect we would have seen it, we've seen it by now but I can't -- I still can't see in results and all the metrics that we've looked at.

[Operator]

Your next question today comes from the line of Ben Gilbert from UBS.

[Ben Gilbert, Executive Director and Analyst]

Just the first question from me, just to John just around Coles. I was just wondering if you could give us any color just around how big and positive an impact the Sports for Schools initiative had and whether you've sort of managed to maintain that post February through March, whether the trends came off a bit.

[John Durkan, Managing Director of Coles Division]

No, the trends haven't come off in terms of our Sports for Schools. Sports for Schools would've replaced activity from last year. So it's -- as I said before, it's a part of our portfolio of investment in customers and communities. And it was just a different approach to engaging with customers over that period of time. So we've seen, as I said, strong engagement from our customers, particularly in Sports for Schools, and that hasn't diminished since we finished it.

[Ben Gilbert, Executive Director and Analyst]

Okay. So there wasn't any noticeable peak out from that promotion? It was more or less consistent, as you said, sort of lapping another initiative in the pcp.

[John Durkan, Managing Director of Coles Division]

Yes, yes. And it's a consistent improvement in the business across the quarter.

[Ben Gilbert, Executive Director and Analyst]

Okay. Great. And just final one from me, just to Michael just on Bunnings Australia. Just wondering if you could talk to the pricing trends that you see. Are you still continuing to invest in pricing and seeing deflation, or just interested in that dynamic?

[Michael Schneider]

Absolutely continuing to invest in price. I think it's been sort of a -- a pretty well-trodden path of Bunnings is constant investment in price, constant investment in value creation per customers. Because at the end of the day, that's the way that we get chosen, and I think that's how we model and certainly continue. We see a little bit of deflation sort of moves around a bit depending on some of the categories but still continues to be some. And we also continue to invest ourselves in bringing down prices for more value.

[Ben Gilbert, Executive Director and Analyst]

So the deflationary trends are pretty consistent over the last sort of couple quarters and couple of years?

[Michael Schneider]

Yes.

[Operator]

There are no further questions at this time.

[Robert G. Scott, Managing Director]

Okay. Thanks very much, everyone, for taking the time. And any question -- any further questions, please flow them through to Aleks and the team. Thanks a lot.

[Operator]

Ladies and gentlemen, that concludes our conference for today. Thank you for participating. You may now disconnect.