Coles lifts Wesfarmers profit to $2.26b

Strong growth from Coles has helped Wesfarmers post a six per cent rise in annual profit. Source: AAP

THE head of Coles says Australians are still paying too much for groceries, even as it posted a $1.5 billion full year profit.

A 13 per cent rise in earnings from Coles helped its parent company Wesfarmers grow its annual profit by six per cent to $2.26 billion.

Coles and hardware chain Bunnings were the strongest contributors to Wesfarmers' profit, but Target suffered a heavy fall in earnings, as did the company's coal mining operations.

Still, Wesfarmers managing director Richard Goyder is optimistic about the year ahead, forecasting further growth in most of its retail chains.

"There are challenging conditions in Target ... it's difficult to foresee how the resources business will perform, but we expect to see continued strong growth in Coles, continued strong growth in Bunnings and other retail businesses," Mr Goyder told reporters.

Coles' earnings and sales growth reflected a higher number of transactions, overcoming price deflation, which is mainly the result of discounting.

The supermarket chain's chief executive Ian McLeod indicated more discounting was possible.

"I'm still convinced that people in Australia are paying too much for some products that can be bought for less in other countries," Mr McLeod said.

"There are still certainly lots more opportunities in cost-of-doing-business."

Overall profit growth for Wesfarmers was weaker than analysts had expected, and Wesfarmers shares closed 67 cents, or 1.6 per cent, lower at $41.26.

Mr Goyder acknowledged that Target needed to change its fashion range to compete with Zara, Top Shop, Gap and online stores.

Target's 44 per cent fall in earnings was caused by lower prices, excess stock and increased costs.

IG market analyst Evan Lucas said Target's performance was a major concern for Wesfarmers, as a new management team took charge.

"How effective they will be remains to be seen as global apparel players such as Zara, Top Shop and H&M bite into the brand," he said.

Wesfarmers' coal division is also a concern due to falling commodity prices, and questions about a possible sell-off may soon be raised, Mr Lucas said.

The will deliver a $579 million Christmas present to shareholders via a 50 cent per share capital return, which will be paid in addition to its final dividend for the 2012/13 financial year of $1.03 per share.

Mr Goyder said the one-off payment was a result of a series of property spinoffs.

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