Wesfarmers urged to sell Kmart to fund revamp of Target

Wesfarmers owns a huge range of retail giants including Coles, Bunnings, Kmart, Target, Officeworks and Liquorland. Photo / NZME

Wesfarmers has been urged to sell off Kmart while the store is at "peak valuation" to avoid the store suffering at the expense of a Target revamp.

That's the warning from Credit Suisse retail analysts this week who urged the retail giant not to play a "zero-sum game" with the two family department stores.

Analyst Grant Saligari said in a research note that Kmart, Target and Big W have all illustrated ups and downs at the expense of each other, Fairfax reports.

"A solution to this apparent dilemma for Wesfarmers could be to sell Kmart and, arguably at peak valuation, and then set about trying to fix Target," Mr Saligari said.

"The approach has a reasonable chance of capturing the upside value of both businesses," he said.

Mr Saligari suggested selling Kmart while the company is at "peak valuation" and using the billions of dollars in proceeds to help Target.

There is no indication the company is considering this strategy however Wesfarmers shares closed up 11 cents following the report at $43.40.

The conglomerate's latest half-year results show there was "strong growth in Kmart partially offset by difficult trading and further restructuring activity in Target."

Reported earnings for department stores declined overall in the half year to 31 December 2016.

Wesfarmers owns a huge range of retail giants including Coles, Bunnings, Kmart, Target, Officeworks and Liquorland.

It has recently undertaken a high profile expansion into the UK market replacing Homebase stores with Bunnings.