WESFARMERS BOOKS BUMPER PROFIT BUT SUPERMARKET WAR HITS COLES' BOTTOM LINE

SUPERMARKET giant Coles has posted its biggest slide in earnings since it was acquired by Wesfarmers (ASX: WES) 10 years ago as it faces intense competition from Woolworths and German chain Aldi.

Wesfarmers revealed Coles' earnings plunged 13.5 per cent to $1.61 billion which is the first earnings decline since it acquired the business in 2008.

Analysts had expected Coles to drag on Wesfarmers' bottom line because of Woolworths' multi-billion dollar campaign to drive prices lower, which has increased its own sales growth.

Wesfarmers also warned that Coles would continue to come under pressure in the 2018 financial year.

"In a very competitive environment, sales and margin pressures in Coles are expected to persist," Wesfarmers CEO Richard Goyder says.

"Within this environment, Coles will focus on plans to further enhance the quality of its fresh offer, and improve merchandising and availability, while continuing to drive operational efficiencies to support investments in value and service."

Goyder says he expects Coles will return to earnings growth over the long term with a customer-led strategy focusing on value, service and better quality.

Overall, Wesfarmers' full-year results met market expectations with a profit of $2.87 billion, a rise of $2.46 billion on the previous year which was affected by nearly $2 billion in writedowns and impairments.

Excluding these items, net profit for 2017 rose 22.1 per cent thanks largely to strong earnings from its hardware business Bunnings.

Bunnings' Australia and New Zealand earnings jumped 10 per cent to $1.33 billion, although the group's UK and Ireland hardware business reported an $89 million loss in its first full financial year since the acquisition of UK chain Homebase.

Kmart's earnings increased 17.7 per cent to $553 million on revenue growth of 7.5 per cent, while Target trimmed its pre-tax loss from $195 million to $10 million.

Officeworks also reported improved earnings of $144 million, up 7.5 per cent and a lift in coal prices helped boost Wesfarmers' coal mine earnings.