Wesfarmers expects up to $315 million impairment in 2020 as part of Target review

(Reuters) – Australia’s Wesfarmers Ltd said on Friday it expects a pre-tax non-cash charge of up to A$480 million ($315.22 million) in fiscal year 2020 as part of a strategic review of Target, which is part of its department store division Kmart.

The conglomerate said after the first phase of its review, it had identified the need to convert about 52 Target Country stores to small-format Kmart stores and close the remaining 50 Target Country stores that cannot be converted to Kmart stores.

Sales at the stores have been hit hard as shoppers stayed at home amid coronavirus-related lockdowns.

But Target’s woes are not new. It saw a steep drop in sales in the half-year results announced in February, following which Wesfarmers said it had accelerated initiatives to “improve the unsatisfactory financial performance of Target”.

Due to the store closures and write-offs, Wesfarmers expects restructuring costs and provisions for Kmart Group of A$120 million to A$170 million before tax for the year ending June 30, inventory write-offs and a “significant” reduction of the size of its store support office.

The company, which is pushing to increase its digital capabilities, added it expects a pre-tax gain of A$290 million for the year from the sale of its 10.1% stake in Coles Group Ltd