COVID fear and supply famine join to decimate Kmart, Target’s earnings

Managing and paying staff who are isolating is one half of the challenge. Finding staff to man stores and distribution centres is the second arm of a debilitating pincer.

Meanwhile, managing inventory during a period where demand is unprecedentedly uncertain is nothing short of a crap shoot.

While Officeworks, Target and Kmart have been hit, Wesfarmers provided limited clarity around the earnings from its flagship Bunnings – saying only that in the half to December its performance was pleasing.

Bunnings has been a beneficiary of the pandemic for the most part as people forced to stay at home spent money and time on DIY projects. Whether the home-renovator set is happy to brave Omicron and visit Bunnings barns remains to be seen.

But thanks to Bunnings’ COVID armour (to date) and some strong trading performances from other parts of the Wesfarmers empire – in particular the chemicals and energy and fertiliser divisions – the conglomerate is set to usher in net earnings within expectations of between $1.18 billion and $1.24 billion in the half to December.

The degree of investor relief was measured by the Wesfarmers’ share price which was up 2.7 per cent at $55.45 in late afternoon trading compared with the index which was largely flat.

Wesfarmers isn’t pandemic bulletproof but has been saved by its conglomerate model from significant earnings wounds. It is a model that has been unfashionable for decades but one which Wesfarmers has successfully defended by its performance and continues to do so.

But it is a luxury that most other discretionary retailers don’t have.

The performance of Kmart and Target in particular also serves as a negative harbinger for a slew of others in the sector that have yet to provide a glimpse of the damage that Omicron has inflicted over the last few weeks of December and into January.

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(We saw a glimpse last week when Qantas downwardly revised traffic numbers thanks to large numbers of people either in isolation or who are reluctant to play chicken with the virus and board planes.)

It is the reason why business is so closely monitoring predictions from government and health officials on when Omicron will peak.

This will determine whether the second half of the financial year earnings can be rescued. At this stage it’s a prediction no retailer could make.