‘Unacceptable’: This retailer is costing Wesfarmers millions

“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.

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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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