Wesfarmers (ASX: WES) is putting growth before short-term profits for its subsidiary Catch.com.au as the online marketplace looks set to record another period of losses in the competitive e-commerce environment.
The business acquired by Wesfarmers for $230 million in 2019 is due for an earnings before tax (EBT) loss of $43-45 million for the six months to 31 December 2021, which is only $1 million shy of its losses for the entire FY21 calendar year.
Those FY21 losses were also amplified by two years of amortisation costs worth $21 million, or almost 2.2 per cent of the $973 million transactions processed and 4 per cent of its $528 million in revenue.
Wesfarmers claims the latest loss reflects continued investment in the Catch's team, technology, marketing and capabilities to support long-term growth. However, a sharp drop in gross transaction volume (GTV) growth has likely played a part too, plunging from 41 per cent in FY21 to just 1 per cent.
The group notes elevated GTV growth for Catch during periods of lockdown was offset by a decline as restrictions eased, particularly within the in-stock business.
Nonetheless, this is still a 97 per cent improvement on two-year basis for the six-month period.
In its first full year as part of Wesfarmers, Catch EBT was positive at $1 million in FY20, but GTV was much lower than what it is today at $632 million and revenue was $364 million.
Wesfarmers has also provided an update on other segments of its large retail portfolio, including details on the significant impact of COVID-related disruptions and costs on the performance of Kmart Group and Target.
The company says Kmart and Target trading performance through the first half of the 2022 financial year was impacted by COVID-19, with almost 25 per cent of store trading days lost due to government-mandated store closures.
“Trading conditions improved as restrictions eased during the second quarter of the 2022 financial year, but customer traffic to stores was impacted by rising community transmission of COVID-19 in some states, particularly during the Christmas trading period,” Wesfarmers said.
“Ongoing global supply chain disruptions were well managed during the period as a result of investments made to hold additional inventory domestically, but high levels of COVID-related absenteeism in New South Wales and Victorian distribution centres impacted the ability to deliver stock to stores in line with customer demand.”
Combined Target and Kmart sales declined 10.3 per cent for the first half, and 5.2 per cent on a two-year basis.
Ultimately, Kmart and Target are expected to generate between $215 million and $223 million in combined earnings before tax for the half.
Wesfarmers expects to report net profit after tax (NPAT) of between $1.18 billion and $1.24 billion, in line with expectations, for the half year ended 31 December 2021.
Shares in WES are up 2.22 per cent to $55.20 per share at 10.58am AEDT.
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