Coles Myer sets five-year profit goal


Coles supermarkets are part of Australia's biggest retailing group, Coles Myer

CNN's Geoff Hiscock
Asia business editor

SYDNEY, Australia (CNN) -- Australia's biggest retailer, Coles Myer Ltd., aims to double profit by mid-2006, it stated as it unveiled its five-year plan on Tuesday.

CEO John Fletcher, who took the reins of the giant group in September 2001, said he had set that target as a challenge for his management team.

Fletcher said Coles Myer also aims to achieve a return on investment of about 20 percent by 2004 and is on track to deliver 20 percent profit growth in the year to July 2002.

The mammoth makeover for Coles Myer follows a five-month assessment of the group. It has annual turnover of about A$26 billion ($13.8 billion) from its Coles supermarkets and department stores such as Myer and Grace Brothers. It also runs Kmart and Target stores, under license.

Last week, Coles Myer reported net profit of A$212 million ($112 million) for the six months to January 2002, a rise of 8.2 percent on the corresponding period a year earlier.

Sales were up 8 percent to A$13.28 billion.

Share price down

Despite lifting sales by A$9 billion ($4.8 billion) in the past decade, Coles Myer's returns in recent years have disappointed investors, who point to the performance of arch-rival Woolworths.

Earlier this month Woolworths reported net profit for its first half to January 2002 was up 24.3 percent to $295.5 million, on sales of A$12.75 billion.

Coles Myer shares touched a high of A$9.22 in February 1999 and traded Tuesday at A$8.36, down 43 cents or 4.89 percent.

Woolworths shares, which were at A$5.64 in February 1999, have more than doubled since then and hit a record high of A$12.92 on March 13. They traded Tuesday at A$12.44, down 7 cents or 0.56 percent.

Coles Myer's Fletcher said Tuesday that as part of the new strategy, the company would end its highly popular shareholder discount program by July 2004.

Costly to administer

After Coles Myer introduced the loyalty card in 1993 -- which gives discounts of 3 to 10 percent for customers holding at least 500 shares-- shareholder numbers rose from 62,000 to 580,000.

About three quarters of those shareholders hold only between 500 and 1,000 shares.

The discount card is known to be costly to administer and has an impact on already-thin margins. Fletcher said keeping the program was not in the best long-term interests of "all our stakeholders".

Fletcher also announced Coles Myer had sold its 244 Red Rooster stores and 50 franchise stores "at a small loss" to Perth-based Australian Fast Foods.

Fletcher said he was looking for annual cost savings of A$300 million by July 2004 and "high single digit" group sales growth to 2006. He confirmed that the group expected to lift net profit by 20 percent in the year to July 2002.

Given all the names in its corporate stable, Coles Myer has around 2,000 stores in Australia and New Zealand.