Kmart turnaround chief to exit Wesfarmers, Target

Guy Russo's retirement announced as Wesfarmers announces record department store earnings but further impairment charges at Target

Wesfarmers star Department Stores Division leader, Guy Russo, is retiring from his position as CEO overseeing both Kmart and Target.

Under the proposed leadership change, current Kmart managing director, Ian Bailey, will step up to assume leadership across both retail brands as Wesfarmers Department Store chief. Wesfarmers Department Store division CFO, Marina Joanou, has also been promoted to managing director of Target Australia, effectively immediately.

Russo remains an advisor to the group for the rest of the 2019 financial year from 1 November.  

Russo has been an instrumental figure in the successful turnaround of the Kmart business over the last 10 years, work that then saw him also appointed managing director of Target after the group united both brands in a Department Stores Division in February 2016. It was at this time that Wesfarmers brought Bailey on-board to head up Kmart.  

The news came as Wesfarmers reported its annual financials to 30 June 2018. The group reported revenues of $66.89 billion, a 3 per cent year-on-year increase against restated 2017 revenue and excluding the discontinued operations of Bunnings in the UK and Ireland. Full-year EBIT for continuing operations was down slightly to $4.06 billion.

One of the highlights for the ASX-listed group was revenue of $8.8 billion and a record EBIT of $660 million across the Department Stores Division, the latter an increase of 21 per cent year-on-year. Officeworks also recorded an 8.3 per cent rise in EBIT to $156 million.

In contrast, Coles saw a 6.8 per cent drop in EBIT to $1.5 billion over the 12 months,

“Guy leaves a valuable legacy that is reflected in the record profit result for the Department Stores Division for the 2018 financial year,” Wesfarmers MD, Rob Scott, said in a statement. “He has led a world-class turnaround of Kmart into one of Australia’s best product development and retail companies.

“Under Guy’s leadership, Kmart’s earnings have increased more than five-fold and more recently, he has led a significant reset of Target, reducing its cost base and returning it to profitability. The record Department Stores earnings announced today demonstrate the enormous value that has been created for shareholders.”

Target isn’t quite out of the woods yet, however, and Wesfarmers announced impairment charges such as goodwill ($47 million), brand name ($238 million) and other fixed assets ($21 million), bringing total impairment to $306 million for the year. In the report, Wesfarmers noted the charges reflected difficult trading conditions and a ‘moderated outlook’ for the business.

Commenting on his departure, Russo said he was excited for the future leadership of both Kmart and Target. “Both businesses are well positioned in the retail sector and, under the leadership of Ian and Marina, will continue to provide affordable, quality products for our customers to enjoy,” he said.

Scott also noted the promotions of Bailey and Joanou reflected the strong management talent that had been fostered within the group.

Meanwhile, Wesfarmers’ latest financials represented a year of significant change for the group, Scott said. Among these are the demerger of Coles Group, expected in November, and the more recently proposed sale of Kmart’s Tyro and Auto Service business.

“The three key priorities for the year were to address areas of under performance, reposition the portfolio and drive opportunities for growth, with good progress made against each of these,” he said. “The proposed demerger of Coles, and the divestments of Curragh and BUKI during the year, demonstrate a disciplined approach to capital allocation and portfolio management, and will reposition Wesfarmers for the next decade.”  

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