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Executives

Richard Goyder – Managing Director

Terry Bowen – Finance Director

Analysts

Tom Kierath – Morgan Stanley

Craig Woolford – Citigroup

David Errington – Merrill Lynch

Ben Gilbert – UBS

Shaun Cousins – JPMorgan

Michael Simotas – Deutsche Bank

Andrew McLennan – CBA

Grant Saligari – Credit Suisse

David Thomas – CLSA

Wesfarmers Ltd. (OTCPK:WFAFF) Q1 2014 Retail Sales Results Briefing Conference Call October 23, 2013 8:00 PM ET

Operator

Ladies and gentlemen, thank you for holding, and welcome to the Wesfarmers quarterly retail sales briefing. (Operator Instructions).

This call is also being webcast live on the Wesfarmers website and can be accessed from the homepage of wesfarmers.com.au.

I'd now like to hand the call over to the Managing Director of Wesfarmers Limited, Mr. Richard Goyder.

Richard Goyder

Good morning everyone and thanks for joining us for the first retail sales briefing of the 2014 financial year. I'm joined in Perth by Terry Bowen, our Group Finance Director. And as usual, I'll give you an overview of the sales results and leave plenty of time for any questions that you might have.

Just briefly before I talk on the retail sales, just in relation to export coal pricing, as per our announcement this morning, price negotiations for the October to December 2013 quarter for metallurgical coal exports from our Curragh coal mine have now been concluded with the majority of our customers. The weighted average U.S. dollar [FAB] pricing for new contract prices of Curragh metallurgical coal, as you all know, that includes hard coking, semi-hard coking and PCI, will increase by approximately 5% for the December 2013 quarter as compared to the September 2013 quarter contract pricing. This coal pricing for Curragh's range of metallurgical coal is in line with the recent market price settlements.

Now I'll turn to the sales results for the first quarter for the retail businesses.

The sales results for the retail divisions were generally pleasing, particularly the good performance of Coles, Bunnings, Officeworks and Kmart. We continue to focus on improving merchandise office with increased value for customers reflected in the strong transaction and volume growth achieved.

Coles headline food and liquor sales growth for the quarter was 4.4%. Comparable food and liquor sales grew 3.4%, with volume growth remaining strong, particularly in fresh produce where there was significant deflation. That is the 21st consecutive quarter of comparable results growth in Coles. Coles continues to offer customers better value through ongoing investment in lower prices while making good progress in both product and store format innovation.

Bunnings recorded strong total sales growth of 10.4% for the quarter (inaudible) store sales growing 7.1%. Bunnings achieved good growth in both consumer and commercial areas as customers continue to respond well to strategic initiatives which are creating more value and better customer experiences.

Officeworks total sales grew 3% for the quarter with good transaction growth achieved in both the store network and online, consistent with Officeworks' Every Channel strategy.

As we previously foreshadowed, Target's comparative to sales performance was below last year, declining 5.2%. Clearance activity of excess went to inventory during the quarter and the non-repeat of promotional activity in the same period last year significantly affected trading. Importantly though, during the quarter, Target continued to strengthen its leadership team to oversee its longer-term transformation with a number of key appointments made.

Kmart's total sales for the quarter were 4.6% above last year, with comparable sales increasing 2% when adjusted for the effect of the Toy Sale change. Transactions in units sold increased for the 15th consecutive quarter, with good performances achieved in core apparel and home categories.

I'll just go through a bit more divisional data on there. For Coles food and liquor, Coles headline food and liquor sales as I said for the first quarter were up 4.4% at $6.9 billion. Coles recorded comparable food and liquor store sales growth of 3.4% with comparable food store sales growth of 4% achieved.

Food and liquor price deflation of 2.5% was experienced during the quarter as a result of significant fresh produce deflation and Coles' continued investment in lower prices to deliver better value to customers. Customers again responded favorably to Coles offer, which focused on product quality, service and value, and result in good volume growth during the quarter.

Coles also extended efforts to source more local products at Coles, holding dedicated (inaudible) in every state on new local products to offer customers. As a result, over 120 new local products were stocked by Coles during the quarter. These include products such as (inaudible) popcorn, spring water, sushi, honey and salad dressings. Coles remained committed to supporting local food produces with 90% of Coles brand food and drink products being made or growth in Australia.

During the quarter, Coles continued to improve its store network and invest in quality floor space. Coles also made positive progress on its store renewal program with a number of next-generation renewal stores expected to open before Christmas with format and category innovations focused on fresh produce, bakery and freshly prepared hot and cold takeaway meal offer improvements.

Coles opened three supermarkets and closed three supermarkets during the quarter, with the pace of new store openings to increase over the balance of the year. At the end of the quarter Coles had a total of 756 supermarkets. Fifteen stores were refurbished during the year with 360 stores in the renewal format at the end of the quarter. Consistent with prior years, refurbishment activity will accelerate during the December quarter prior to Christmas.

In relation to the liquor business, in a market that saw general declines during the quarter, liquor made further progress, improving pricing and range architectures to offer customers more value and further optimizing its store network. Coles opened six new liquor stores and closed four stores during the period, resulting in a total of 812 liquor stores at the end of the quarter.

On convenience, total Coles Express sales for the quarter including fuel were $2 billion, an increase of 6.5% on the previous corresponding period. Headline fuel volumes declined 1.1% during the quarter and comparable fuel volumes declined by 1.6% as customers responded to higher fuel prices during the period. During the quarter Coles Express continued to drive positive outcomes in its diesel and premium fuel and multiple value offers.

Convenience store sales excluding fuel sales increased by 1.3% for the quarter and comparable store sales increased 1.6%. The improved convenience store sales performance demonstrated continued development of the convenience offer which, following the initial extension of the Down Down campaign Coles Express stores during the March 2013 quarter, so Coles Express launched its largest ever in-store discounting campaign in October. Over 1,000 products are now discounted in-store, including 33 new products added to the Down Down offer during the quarter. Coles Express opened two new sites and closed four during the quarter, bringing the total store network to 634 sites.

Now turning to Home Improvement and Office Supplies, total sales for the Home Improvement division for the quarter of $2 billion were up 10.3% on the previous corresponding period. Total store sales for the quarter grew 10.4% while store-on-store growth was 7.1%. Sales growth was achieved in all key trading regions across all product categories and in both consumer and commercial areas. Positive business momentum and strong store transaction growth were pleasing and good traction continues to be achieved in all key strategic initiatives, creating more value and better experiences for the customers.

Merchandise innovation and the ongoing development of Bunnings commercial offer were also highlights. During the first quarter, five Bunnings warehouses and one Trade Centre were opened. At the end of September 2013, a further 21 stores were under construction, with new store openings for the 2014 financial year weighted towards the backend of the year.

And in Officeworks, total sales for the quarter were $373 million, up 3% on the previous corresponding period. In line with Officeworks' Every Channel strategy, strong transaction growth in both the store network and online drove an increase in sales across both categories.

The business continues to progress well despite market conditions, improving the offer for all customers in an integrated way across every channel. Officeworks also continues to expand its presence in the business to business market. During the first quarter, three Officeworks stores were opened.

On to Target, Target total sales of $789 million for the quarter was 6.1% below the previous corresponding period, with comparable store sales decreasing 5.2%. As we have previously outlined, trading for the first quarter was challenging, reflecting the continued clearance of excess winter inventory which delayed the launch of the spring and summer range. Sales were significantly affected by higher levels of clearance activity and the non-repeated promotional activity of the prior corresponding period. As a result of this clearance activity, winter inventories declined significantly during the quarter.

Positively, where improvements have been made to ranges and price architectures, customers have responded favorably to the enhanced offers. Also during the quarter, further Christmas range reviews were completed and a major focus area of the business was the revitalization of its senior leadership team. Importantly, the majority of new management will be in place by Christmas following which transformation activities will accelerate. During the quarter, Target opened two new stores and closed one.

And finally to Kmart, total sales of $970 million for the quarter were 4.6% above the previous corresponding period, with comparable store sales decreasing 1.2%. Excluding the effect of the Toy Sale at the beginning of the quarter which this year saw the removal of Christmas lay-by comparable store sales increased 2%. Following the Toy Sale change, the sales performance in Everyday Toys has been strong, reflecting a positive customer response to lower pricing and an improved range.

Kmart achieved strong sales growth across apparel and home categories where within the apparel category performance was particularly strong across children's wear, underwear and sleep wear, reflecting Kmart's continued focus on delivering low prices to families on everyday items. Sales in maturing categories such as video games, music and DVDs continued to decline during the quarter.

During the quarter, Kmart maintained its commitment through refreshing stores with six store refurbishments completed. Kmart opened one replacement store in (inaudible) in Queensland and temporarily closed one store during the quarter.

In relation to outlook, all of our retail divisions remained focused on providing customers stronger merchandise offers and better value, and the divisions are generally well-placed for the important Christmas trading period.

I'll now hand over to questions which Terry and I will be very happy to answer.

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. (Operator Instructions).

The first question comes from the line of David Thomas calling from CLSA. Please ask your question.

It looks like the question has been canceled, so we'll move to the next question in queue from the line of Tom Kierath calling from Morgan Stanley. Please ask your question.

Tom Kierath – Morgan Stanley

Morning guys. Just a question -- morning, hi. Just a question on the election, whether you've seen any improvement since then and whether the actual election, kind of what sort of impact that had on trading through the quarter.

Richard Goyder

Yeah. Tom, in (inaudible) I often say that the election wasn't having much an impact, but the reality was the last two or three weeks prior to the election there was a bit of an impact, probably more in the discretionary than non-discretionary. But certainly sales got a bit softer. The week after the election was a really strong week for us. And then it's pretty quickly gone back to where it was prior to that.

So I wouldn't -- I mean I think the election had a marginally negative impact on businesses. I wouldn't call it out as a significant impact. But through the quarter it probably had a marginal negative impact.

Tom Kierath – Morgan Stanley

Thanks.

Operator

And the next question comes from the line of Craig Woolford calling from Citigroup.

Craig Woolford – Citigroup

Morning, Richard; morning, Terry.

Richard Goyder

Hey, Craig.

Craig Woolford – Citigroup

I think you are going to guess what my question is. I want to talk about petrol discounts. And understand -- [I'm working on predictable].

The petrol discounts was something that was called out by Ian McLeod as an increase in spending for FY13, $180 million or thereabouts. And it certainly didn't look like it had a material impact on sales during FY13. So we thought that petrol discounts might have faded away. But then on the 25th of September, Coles reintroduced an 8-cent offer, and that ran through the end of October.

So I'm just interested in the rationale for these petrol discounts. But more importantly, you know, whether you're seeing a sales (inaudible) risk because I can't see it in the numbers released today.

Richard Goyder

You know, Craig, Terry can add to this, I mean I think petrol discounts are one aspect in the offer. Customers at the moment with fuel prices are -- do respond pretty favorably to it. As you know, the same quarter last year we had discounts [here] as well.

So, you know, I think it's just part of the arsenal that Coles has got and use it from time to time. I don't I'd have much more to say. But Terry, do you want to add anything?

Terry Bowen

No, I think that's right. It's one of many things we use, and there's obviously, within the market now, there's also (inaudible) larger basket, shoppers with sort of loyalty programs. So there's a number of things that play on that front, Craig, and it's just part of our promotional program.

Craig Woolford – Citigroup

Sure.

Richard Goyder

If you look, Craig, if you look at the 12 months, our discount on fuel, average discount on fuel and our average margin on fuel has varied very, very little quarter by quarter.

Craig Woolford – Citigroup

Sorry, can you just explain what you mean by that a little bit more? So the margin on fuel --

Richard Goyder

Our average discount for the quarter and our average margin for the quarter --

Craig Woolford – Citigroup

On fuel.

Richard Goyder

-- on fuel, hasn't varied a lot in terms of cents per liter.

Craig Woolford – Citigroup

Sure. (Inaudible) [flowed] into the market.

Richard Goyder

Well -- yeah. But the main reason, if you look at the overall sales trend slowdown is because of deflation in the last quarter. So volumes have been strong. And don't forget, we also, you know, we're comping against (inaudible) Sunday Trading last year this quarter.

Craig Woolford – Citigroup

Yeah. (inaudible).

Richard Goyder

Yeah. So our underlying volumes have been pretty stable.

Craig Woolford – Citigroup

Okay. Thank you.

Operator

And the next question comes from the line of David Errington calling from Merrill Lynch. Please ask your question.

David Errington – Merrill Lynch

Hi, Richard; hi, Terry. Firstly, just a quick clarification then another question on more in-depth. But with Kmart, how does the total sales increase by 4.6% for the quarter and yet comp store sales or like-for-like sales have been 1.2% when there hasn't really been a great deal of store movement. If you could clarify that.

And the second question is on Target. When do you think you will be through all these clearance activity, etcetera, etcetera, so that we can actually assess Target's performance operating in clean air? Are we there now or has still got a little bit more clearance activity to do going into the all-important Christmas period?

Richard Goyder

I'll do target first and then Terry can deal with the Kmart issue there, etcetera. Target there's a little bit more to do, but on a -- our levels of inventory of winter products is pretty good now, so there's a little bit more to do. And we expect the business to be more and more in clear air as we approach Christmas.

I think, if I could just talk a bit more generally about Target, David, the casing that -- the two casings we've done this last quarter is we've got the inventory levels under control, and that's been a pretty painful process as you can see in the sales results. But I think more important, Stuart's bringing into the business a world-class team, as I said, majority are being placed by Christmas, you know, and -- the improvements in Target will come over time because we've got to improve not just how the stores look and feel and the format of the stores but also the merchandise offer. We've got a terrific new head of merchandising in a fellow by the name of Rich Jones who's, you know, only just landed.

And so I would expect the offer, the range to be materially better this time next year than it is now, but it'll take some time, because in this business orders are placed months ahead. So our -- most of our spring/summer range and a fair bit of our Christmas range was in place quite a few months ago.

So, you know, so we're not going to see a big step change in the performance of the business, but I expect, you know, I would hope that we'll be able to you in February when we talk about the second quarter, that we're seeing some progress and that that's starting to demonstrate itself in the sales of the business.

David Errington – Merrill Lynch

Because my point is on the back of, you know, the fourth quarter '13, it was minus 9.8% like for like and then first quarter '14. You know, this first quarter you're down 5% on a [slightly] negative comp in the first quarter. I mean I would have thought that the majority of the cleanout should have happened and it wouldn't be too unrealistic to expect some positive comp starting to come through. Is that unrealistic for the second quarter or is that a realistic expectation?

Richard Goyder

We really expect to see, certainly in -- really expect to see, you know, as we see the numbers week by week, David, we expect to start seeing some positive comps. Whether that, you know, how that -- Christmas -- December is so important. I'm not going to be bold enough to predict that.

We're not in any way going to talk up the performance of Target today. We're dissatisfied with the performance of the business. Stuart Machin and the team are dissatisfied with it. And, you know, there's a lot of work going on to improve the business. But that's where we're at.

David Errington – Merrill Lynch

The question is really, have we now [rebased] Target or is there still more to go?

Richard Goyder

No, I think we've [rebased] Target.

David Errington – Merrill Lynch

Okay. Yeah.

Richard Goyder

Yeah.

Terry Bowen

In relation to your question on the comps versus headline that came out, David, it's to do with the Toy Sale this year versus last year. We didn't call it Toy Sale this year, it came out it was a toy event. The primary difference was the stoppage of lay-by. So lay-by doesn't get excluded in headline -- doesn't get included in headline sales. So therefore headline to headline is comparable, but it does get included in comparable sales. So last year had a [later] lay-by which was in the comp figure, and this year we didn't do lay-by so there's no -- so that's -- nothing in that comp figure, so when you compare the two, that's why comp --

David Errington – Merrill Lynch

You ran that by then, Terry, lay-by is not in headline -- can you run that again? Sorry.

Terry Bowen

Lay-by is not in headline but it is in comp.

David Errington – Merrill Lynch

Okay. And -- okay. I think I've got that.

Terry Bowen

Okay.

David Errington – Merrill Lynch

Thanks, Terry; thanks, Richard.

Richard Goyder

Thanks, David.

Operator

And the next question comes from the line of Ben Gilbert calling from UBS. Please ask your question.

Ben Gilbert – UBS

Good morning, Rich and Terry. Just wanted to talk a little bit more about the deflation sort of thing in grocery. I understand the (inaudible) [1.12%], but could you talk a little bit about what you're seeing on the dry side? Because there's a bit more sort of chatter out there about sort of (inaudible) price increases in the market maybe becoming a little bit more rational, and just what you're seeing in that part of the business.

Richard Goyder

Yeah. I think one of the problems we experienced when you look at [ABS] is they use a standard basket there. What consumers do is they'll adjust their purchasing based on what the in-store pricing of the product is. So our fresh produce was double digits for the --

Ben Gilbert – UBS

Okay.

Richard Goyder

-- deflation was double-digit for the quarter. I'll get Terry to talk about the balance.

Terry Bowen

Yeah. If we just compare quarter to quarter and (inaudible) in terms of levels of deflation, it's been around the 3% or close to it and (inaudible) this period in actual fact the only area of really any inflation in that category was the (inaudible) so. And looking forward, I think again we'll continue to invest in prices within the business to draw value for customers. I guess the rest depends on other commodity, you know, commodity changes, so over time (inaudible) which are harder to predict.

Ben Gilbert – UBS

And is that consumers just buying more? Are you still seeing a relatively large tick-up in terms of stocks on promotion or in the supermarket?

Terry Bowen

Promotional participation has been about the same. It doesn't -- hasn't really varied this year to last year. So not a lot -- the big change this period obviously, which we've talked about, is fresh products which has gone from, you know, the fourth quarter was running basically close to flat in terms of levels of deflation. Relative to, you know, minus 1% versus now well into the double digits, so come at around 12, so, you know, that's a big change. And that's really what's flowed through. Most of the other categories (inaudible) pretty similar.

Ben Gilbert – UBS

Okay.

Operator

The next question comes from the line of Shaun Cousins calling from JPMorgan. Please ask your question.

Shaun Cousins – JPMorgan

Great, thanks. Good morning guys.

Just a question, I know you guys don't often talk about states. But we understand Victoria has been quite weak. I recall that you guys had are reasonable business there. Do you think -- have you guys seen Victoria being weak? And do you think that's sort of weighed on your sales a little more than it would otherwise?

Terry Bowen

Victoria generally across -- Victoria (inaudible) generally across our retail businesses has been a softer, you know, softer performance relative to the other states, as Richard commented on Western Australia which particularly for grocery we're now cycling, we cycle through the trading change for Sundays. So that's come off a bit relative to this time last year.

But Victoria and South Australia, Tazmania (inaudible) if you would assume (inaudible) a region in Australia, you know, has done it tougher than certainly New South Wales, that would be true.

Shaun Cousins – JPMorgan

And that's where you guy would have, you know, you guys will be a little bit more over index there relative to the other states just given the heritage of your business?

Terry Bowen

Yeah, be true probably in grocery.

Shaun Cousins – JPMorgan

Yeah.

Terry Bowen

Certainly more than New South Wales.

Shaun Cousins – JPMorgan

Yeah. Okay. Thanks.

Richard Goyder

Thanks, Shaun.

I'll just give a bit of color back to, Ben, your question on deflation. You know, the comment I made about [ABS]. I think price of bananas went down by nearly 20% last quarter, price of some soft vegetables were down by another 30%, so that -- and meat prices were down double digit as well. So -- and that's what's had the impact through -- on our deflation.

Operator

And the next question comes from the line of Michael Simotas calling from Deutsche Bank. Please ask your question.

Michael Simotas – Deutsche Bank

Hi, good morning guys. Just a question on the food and liquor business I mean obviously you've called out deflation stepping up as one of the reasons that the like-for-like growth trend slowed. Can you talk a little bit qualitatively about what you think happened with market share trajectory either relative to the large competitor or to the independents?

Richard Goyder

Yeah. Pretty stable I think, Michael, based on the numbers we've seen. Might have moved up marginally, but over, you know, but -- I think it has an imperfect number. So I guess the number we see is marginally increased, but nothing that I'd call out.

Michael Simotas – Deutsche Bank

Yeah, okay. So I guess when you talk about stable, I mean Coles has been picking up market share over the past couple of years from both the larger competitor and independents, so relative to larger competitor, independents, do you think that slowed during the quarter or is that maintained?

Richard Goyder

No, it's been maintained.

Michael Simotas – Deutsche Bank

Okay.

Terry Bowen

Yeah. I think the make-up is the market share is important. I mean Coles has been growing. If we go to deferred business, Coles has been growing market share largely because we haven't put on a lot of space, so there's been comparative growth in market share [in catchments]. And in terms of the level of increase quarter on quarter, it's a bit hard to call out yet, because we're not obviously (inaudible) September data, but the, you know, it looks to have probably carried on a similar kind of trajectory, which is, you know, on any quarter to quarter is not something necessarily you'd call out as being significant.

And in terms of liquor, you know, the headline level because of store opening growth, we've probably in the last couple of months seen a little uptick in market share, but not significant. Liquor has been more of a challenge on a comparative basis obviously.

Michael Simotas – Deutsche Bank

Yeah. Okay, that was actually my next question. So if I look at the -- I mean you've given us a little bit of color on what the drag from liquor was, I mean it's always a little bit hard to back it out, but it looks like it probably declined a little bit on a like-for-like basis. Is that calculation right?

Richard Goyder

Yeah, that'd be --

Terry Bowen

Yeah.

Richard Goyder

[Headline] sales we're up marginally, but like for like was down.

Michael Simotas – Deutsche Bank

Okay. And then just one other quick one, I just want to understand that Kmart lay-by issue a little bit more. So what you said makes some sense in terms of the difference between like for like and total sales during this quarter. Does that mean that that difference will reverse in the second quarter as both lay-by sales last year would have been redeemed or by and large by customer?

Terry Bowen

Yeah, there'd be some reversal, that's correct.

Michael Simotas – Deutsche Bank

Yeah, okay. All right.

Terry Bowen

We think overall for Kmart, the changes at the Toy Sale will be pretty positive, because what we see is that, you know, despite effectively that big change in Toy Sale, the toys over the rest of the quarter performed pretty well for us. And then obviously we're going to a Christmas period now where, you know, we'll see, you know, a better range, it's always performed, probably the most important part, on better pricing. So --

Michael Simotas – Deutsche Bank

Doing more off-promotion effectively?

Terry Bowen

Yeah (inaudible) it's everyday low prices now.

Richard Goyder

And you don't have the dislocation of all the lay-bys and the impact that has through your distribution system --

Terry Bowen

The only thing we found with lay-bys is that you'd record a lay-by sale at this stage and then you have a reasonable percentage come Christmas time not picked up. So you have, you know, kind of issues with stock that you got to deal with that doesn't get completely transacted on, etcetera, etcetera. So they're not without complication.

Michael Simotas – Deutsche Bank

Okay. All right, great. Thank you.

Richard Goyder

Thanks, Michael.

Operator

The next question comes from the line of Andrew McLennan calling from CBA. Please ask your question.

Andrew McLennan – CBA

Good morning. Look, I just want to clarify something first in relation to the volume growth in Coles. You mentioned that the inflation was 2.5% across food and liquor. I'm just wondering whether we can sort of use that number as a guide just for food alone as well. You've obviously separated out the same-store comp. I'm just wondering whether the implied volume growth has moved to sort of -- maybe from 6% to 6.5% between the fourth and first quarters.

Terry Bowen

Yeah, broadly is the number.

Andrew McLennan – CBA

Yeah. Okay.

Now the other thing I just wanted to ask around Home Improvement, you've obviously had some strong comps for the last two quarters. CBA's internal lending guide is showing some good improvement activity around the housing market, not just in terms of new construction but more importantly for Bunnings, around alterations and additions. So -- but I imagine most of the improvement you're seeing in the first quarter is probably due to the improving weather. Can you just clarify whether or not you think that's a case or whether you're actually starting to see some evidence of the improving underlying activity within that category?

Richard Goyder

Yeah. I think -- if you get low weekends, that has an impact. We try not to call out whether -- certainly when it's a negative, but it probably has been a slight positive this last quarter.

I think the Bunnings thing is more a result of a few other things. Firstly, I think there's been more churn in houses, buying and selling houses, and that's an important -- Bunnings, houses, you know, there's a good correlation there. And you've seen our markets move in -- particularly in New South Wales and Victoria in housing. I think that's been helpful. I think, you know, the [wealth effect] if people see house prices go up, super annuation lower interest rates, all those things helps a bit.

And I just wouldn't underestimate the impact of the improved offer Bunnings, the range. You know, just going to some of our new stores now and see the lighting range, see the plumbing range, see floor coverings, see the outdoor range, and we're getting, you know, really good customer responses to those new initiatives in the business.

So, you know, I think the strength of the Bunnings performance over the last couple of quarters goes -- will be on whether (inaudible) some of these other sectors. And, you know, I think [John] and the team are doing a very, very strong job on the in-store offer. And really pleasingly, we are -- we're getting very good results in the trade area, in the commercial area. The (inaudible) initiative has been good in that area. And as I say, you know, we're getting very strong performance in commercial as well.

Andrew McLennan – CBA

Okay.

Richard Goyder

The other thing, just to be -- Andrew, I'd call out, if for the first time in a long time, currency movements between the Australian dollar and the New Zealand dollar helped Bunnings. So normally that's been a drag and this time it's been a bit of a help.

Andrew McLennan – CBA

Okay. Just to clarify something just with respect to the regional performance. I mean obviously New South Wales being 31% to 32% of the Australian population, it's a pretty important probably market to have improving. Have you actually seen evidence of New South Wales starting to show greater or stronger signs of life than the other regions for Home Improvement in particular?

Richard Goyder

Yeah. But again I think it's one factor. I think New South Wales -- performance in New South Wales over the last couple of years has improved. It's been one of the areas that Bunnings has improved a lot on in terms of geography.

Andrew McLennan – CBA

Okay. Thanks very much.

Richard Goyder

Thanks.

Operator

And the next question comes from the line of Grant Saligari calling from Credit Suisse. Please ask your question.

Grant Saligari – Credit Suisse

Thank you. Good morning. This is a slightly left-field question I guess for a sales call, but a few different retailers have commented about enterprise bargaining agreements and [change], step-up in labor costs as EBAs roll off. Are you able to take this opportunity to sort of clarify that potential for the different retail brands across Wesfarmers?

Richard Goyder

I think we're in pretty good shape at the moment on that front. Most of ours have been done and in a range that you would expect. So I mean the reality is that the labor rates are going up, but sort of just above I guess the rate of inflation. And like all businesses, we've got to ensure we get productivity improvements to deal with that. But we're not calling it out as a significant threat in the business as we move forward.

Grant Saligari – Credit Suisse

Okay. All right, that's good. Thanks for that.

Richard Goyder

Yeah.

Operator

And the next question comes from the line of David Thomas calling from CLSA. Please ask your question.

David Thomas – CLSA

Hi guys. Sorry about getting cut off earlier. I was actually going to ask about Dockers loss and perhaps that's why I got exited.

Richard Goyder

The answer is no. Never.

David Thomas – CLSA

Okay. Good, good. There's always next year.

A question, maybe a clarification from David Errington's point, do you have foot traffic numbers in Target or is there any comment you can make about foot traffic that perhaps would give us some encouragement that, you know, people are still turning up to store even though they're buying at a lot cheaper prices?

Richard Goyder

Yeah (inaudible).

Terry Bowen

Yeah. Foot traffic was marginally down on the same quarter last year, just marginally. The key issue is basket size, and it comes down to -- and it's not items per basket, it's average price per item is the issue. And most of that is driven by clearance. There's obviously some deflation across both. I mean I think that's the -- it's hard to do inflation/deflation numbers in the department stores, but there's no doubt there's pretty strong deflation in those businesses continuing, which actually puts Kmart's results into context. So I think that it's mainly basket size, but certainly in Target's case, a lot of it was clearance driven.

Richard Goyder

David, I said earlier I'm not going to talk up Target's results because there's nothing to talk up. The -- but I do want to say this. You know, I'm very confident of the future and outlook for Target. I think as I said earlier, we've got -- I think Stuart management of the team, we have a world-class team right in this business. We've got a lot of work on the brand and what customers feel about the brand and people in Australia love Target and they want Target to be successful. We've got a terrific network of stores.

And where we've put in place new initiatives, for example, city wear for women, where we've got new people buying good product and we're pricing at will, we're getting terrific sell-through, a good margin and a very good outcome in those sort of areas at the moment.

So, you know, we know where we can -- where we can replicate that over the much broader product range in the business, but Target will perform well. And we just got to get on and make sure we've got the right people in the business in some pretty dynamic markets at the moment. But I'm very confident on the outlook -- longer-term outlook for the business.

David Thomas – CLSA

Okay, all right. Sounds encouraging.

Just on food and liquor, if I look at the actual first quarter numbers you reported last and look at the growth that that implies, it's actually 4.9% as opposed to the 4.4%. And I think what you've done is rolled forward the 13 weeks so it's perhaps more reflective of this year, it's a slightly different calculation. Is that right or am I getting (inaudible). The numbers you reported for food and liquor last year I think was [6588] as opposed to what's in the numbers. Can you put some color on it?

Terry Bowen

You're right, David. We did that basically to get a comparable period which we [saw], otherwise you start comparing different weeks and it all gets, you know, it's hard enough anyway, just that small complication. So to get a comparable, we changed the calendar on those recent weeks, which (inaudible) Target and Coles.

David Thomas – CLSA

Right. And I guess obviously it's led to the best part of the $50 million increase in the comp from one year to the next. There's nothing in those weeks that should explain that out or is there? It's just, you know, it's just the fact that the new week that was added was just a better week on a year-on-year basis, is that right?

Terry Bowen

Yeah. No, the comps shouldn't -- the comps will be in line, so there's no -- it doesn't mean anything for comps in terms of, you know, being different to what they'd otherwise be if you look to the period. It's really just trying to make sure that we've got, you know, a comparable period.

David Thomas – CLSA

Okay. And I know you've kind of talked to this a little bit, but new store openings, if we look at a 2% target for footprint growth, that's about 30,000 square meters. You did 3,000 in Q1. Are we still on target to get that level of sort of new store openings or increase in footprint of 2% or thereabouts?

Terry Bowen

Yeah, at this stage, I mean there's always some stores that come in towards the, you know, close to the end of June. At this stage, based on all of our modeling at the moment, we think we'll be around the 2% (inaudible) in terms of space growth. We'll have a better idea obviously by the time it comes through the half in February. So if there's any slipping -- with stores slipping or moving around, we'll update you at the time. But at this stage you should be using 2%.

David Thomas – CLSA

Okay, brilliant. All right, thanks very much.

Richard Goyder

I think about 17 stores compared to 20 stores (inaudible) stores in some places.

Terry Bowen

Yeah.

Operator

And the next question comes from the line of Craig Woolford calling from Citigroup. Please ask your question.

Craig Woolford – Citigroup

Hi guys. I stuck to my one question.

Richard Goyder

You're very good.

Craig Woolford – Citigroup

I just want to follow up with a question around the transaction numbers, you know, traditionally the Coles businesses talked about strong growth in customer numbers. You know, is that still the case in terms of the comp store sales growth? So for supermarket, the 4%, most of that driven by customer numbers?

Richard Goyder

[Scott] said, Coles, [I mean] last week, Terry, it's about 700,000 more customers a week now than this time last year?

Terry Bowen

Yeah. And it was -- the vast majority was driven by transaction growth, 10 percentage above the 4% we called out.

Craig Woolford – Citigroup

Interesting market backdrop because they're also telling us they've got lots more customers too, so all I know is that shoppers are shopping more frequently across the market, which I don’t know that it's a good statistic or not, I think a bigger basket size is more profitable for the company.

Terry Bowen

Yeah. Transactions grew most of that percentage (inaudible) I think positively basket size was up, just only marginally on this time last year. And obviously with the deflation in there means units per basket is up. So --

Craig Woolford – Citigroup

Yeah, that (inaudible) deserved, you know, more baskets and smaller baskets. I'm sure $100 basket is much more lucrative than a $30 basket shopper.

Terry Bowen

I mean there's no doubt, bigger basket shoppers, something that is -- that this businesses strive for. I think you've got to look at the productivity improvements that taken place as well to do with smaller baskets. You see a big percentage of customers now going through self-checkout for instance.

Craig Woolford – Citigroup

Yeah.

Terry Bowen

It's obviously meant that some of that cost to serve has been [defrayed]. So there's, you know, it's not something that the businesses aren't working hard to try and manage, obviously. Because as you go after, particularly as you (inaudible) participation to increase, then you do pick up what we call (inaudible) during the week. And that's an important part of the strategy that Coles had (inaudible) how we manage the cost (inaudible) there's been a lot of initiatives [by the management].

Craig Woolford – Citigroup

Okay.

Richard Goyder

I think that's going pretty well because our Q numbers are good. So we're not seeing a deterioration in there.

Craig Woolford – Citigroup

Sure. Okay. Thanks guys.

Richard Goyder

Thanks, Craig.

Operator

And the next question comes from the line of Ben Gilbert calling from UBS. Please ask your question.

Ben Gilbert – UBS

Just one more for me, very broad question for you, Richard. Just in terms of your general feel how the consumer is positioned, particularly on their confidence to maybe now versus back at the full-year result. Because it seems (inaudible) retails probably got a little bit more negative in terms of the (inaudible) trading in the consumer the last couple of months.

Richard Goyder

Yeah. I don't think it's -- as I said, there was a bounce in the week after the election. Now I'd say it's back to where it was. I don't think it's changed a lot, Ben. And I've been talking to policy people recently and, you know, if anything, I think business generally is finding it marginally tougher at the moment. I was talking to, this is in West Australia, and obviously there's been a bigger impact because of what's going on in (inaudible) but I was talking to someone in (inaudible) yesterday and I've certainly seen a drop-off.

So I don't think it's any better, but if I can put my glass half-full sort of hat on, there seems to be -- to me a number of factors that could to, you know, reasonably positive Christmas. You've got the house price increases that we've had, so the [wealth effect] we've had particularly New South Wales and Victoria. I think employment remains pretty strong. We've had interest rate reductions, we've got equity markets performing well (inaudible) super-annuation funds are looking healthy and the investments are looking -- generally looking healthy. And besides those sort of shenanigans in the US Congress over the last couple of weeks, the news from overseas is generally more positive at the moment.

So there seems to me to be a number of factors that would lead to potentially a positive Christmas, but, you know, whether that turns out, who knows. You know, Australians continue to save and there seems to be, talking to people in financial services, a fair amount of cash sitting around. Hopefully people will bring their wallets out in the next couple of months.

Ben Gilbert – UBS

All right. Appreciate it. Thanks, Richard.

Richard Goyder

Thanks.

Operator

And the next question comes from the line of Shaun Cousins calling from JPMorgan. Please ask your question.

Shaun Cousins – JPMorgan

Great, thanks. Just a follow-up. Just on the liquor, can you just confirm that you guys still are no longer doing the [B] wholesaling? And has that been fully cycled? I was just curious about when that actually started to weigh on your sales and whether or not this negative comp that you saw was impacted or by no longer be wholesaling, and broadly where that whole program was at.

Terry Bowen

You know, it completely cycled as of mid-May this year. So basically it's a fairly clean month, so it's not through [B] cycling, or if you like, the [B] discounts that [Rick] was -- the whole market (inaudible) was a bit softer, and we've, you know, obviously, it's partly reflected in those results.

Shaun Cousins – JPMorgan

Okay. Thanks a lot.

Richard Goyder

And we're not, Shaun, we're not doing it.

Shaun Cousins – JPMorgan

Great. Thanks. Good to know.

Operator

And the next question comes from the line of David Errington calling from Merrill Lynch. Please ask your question.

David Errington – Merrill Lynch

A follow-up question, Richard and Terry, completely different from retail, but your coal operation. Your first quarter looks to be stable, would that be a fair accuracy with regard to production, around about what was a 2 million tons of met coal. Is everything going all right out there at the moment, you're on top of things, or is it still going to be much of the same?

Richard Goyder

Yeah. It was pretty okay, David. We, you know, we're briefly targeting between 8 and 8-1/2, we're at the low end of that in the first quarter I guess. But you can always -- there's sequencing issues and a bit more overburden removal which I think we flagged before. So operationally up there things have, you know, there's always issues, but I think it's pretty stable.

You know, moving off the topic of [B], the issues for us was -- the big issue we got in the business at the moment is currency, having -- [once they] retreated, but currency and pricing were going the right way for us and we've had a slight positive movement in pricing. But obviously the currency takes care of that at the moment, what I spoke the last couple of weeks.

David Errington – Merrill Lynch

I mean it just looks like it's just an average quarter, that's all. I mean always hopeful that you get a bit better. What's the outlook for the next? I mean overburden was up 19%. Does that mean that we could see a little bit more product coal coming out or --

Richard Goyder

The (inaudible) customers have been a strong driver and we actually had a bit of high [demarage] because of the mix, we had a bit of high [demarage] in September, so our shipments in October will be stronger. So demand from customers is strong.

And we're running the business at the moment to really keep a focus on our operating costs, you know, really hard. So what we do -- the sequencing, what we're doing, the use of contract, is all of that is designed to have the lowest possible pricing so that we can, you know, generate a decent return in a difficult environment.

David Errington – Merrill Lynch

It just seems that --

Terry Bowen

-- just recall that this time last year we did say that we've obviously got a hit of overburden. One of the ways that we look to reduce costs was to obviously, you know, use out some of that, if you like, surplus that we built up, and so actually moved out of that cycle, you see overburden would have ticked up relative to last year, what it means is probably running at more normal rates for a period --

David Errington – Merrill Lynch

You're producing --

-- quarter to quarter.

David Errington – Merrill Lynch

With the prices at the moment, I mean I don't think it's an unfair question to ask, with the price at the moment, the currency at the moment, and given where costs are now, as you say with you having to step the overburden removal, is the price received greater than the cost outlays?

Richard Goyder

Yeah.

David Errington – Merrill Lynch

By much?

Richard Goyder

Not enough, but it is.

David Errington – Merrill Lynch

Not enough. Not enough. Is it, you know, more than last year?

Terry Bowen

Not in the first quarter of last year because we had pretty strong coal prices in the first quarter last year, so relative to the rest of -- relative to the rest of the year, at the moment it's probably around the same (inaudible).

David Errington – Merrill Lynch

Yeah. Most -- a lot of money was made in the first quarter last year, yeah. Thanks.

Richard Goyder

Thanks, David.

Operator

There are no further questions.

Richard Goyder

All right. Thank you all very much. Please, if there's any follow-up questions, [Mark] and the team, and/or Terry and I are happy to take them. Have a good day everyone.

Operator

That concludes our conference for today. Thank you for participating. You may all now disconnect.

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