Nicole Trunfio (R) and Samantha Harris showcase designs during the Jean Paul Gaultier x Target show during Melbourne Fashion Festival. Graham Denholm/Getty Images

Wesfarmers is taking a $2.3 billion hit on its struggling Target retail chain and its coal business Curragh.

Australia’s biggest private employer will take a non-cash impairment of up to $1.3 billion on Target, reflecting the continuing underperformance of the retailer.

The impairment is mainly against Target’s historic share of the Coles group goodwill.

There will also be $145 million of restructuring costs.

And Target is expected to post a full year EBIT (underlying earnings before interest and tax) loss of $50 million, due to high seasonal clearance activity and lower margins.

Wesfarmers shares were down 1.5% to $41.32 in early trade.

The writedowns are non-cash. Wesfarmers says its final 2016 dividend will be determined based on net profit after tax excluding these impairment charges.

“In Wesfarmers, we firmly believe in doing what’s right for the long term future of our businesses, and we have never shied away from taking tough action in the short term if that is what is required,” says Wesfarmers managing director Richard Goyder.

Goyder says Target has made operational progress but market competition and disruption has continued to accelerate, including from the very strong performance of Kmart.

Wesfarmers recently restructured to create a department stores division, headed Guy Russo, to include both its Kmart and Target chains.

Cutting costs

Target’s management team is working on cutting costs.

Russo says Target is operating in an increasingly competitive landscape and needs to clear quickly any obstacles to its program of rebuilding.

“Since February, Target’s new management team and I have acted promptly to clearly understand both the short and longer term opportunities for performance improvement,” says Russo.

“Through this process I am very confident that, over time, there can be a great future for both Target and Kmart as parallel but differentiated brands in the market place.”

Richard Goyder. Photo: Bradley Kanaris / Getty Images.

Profits at Target have dropped 75% over the past five years. In the latest quarterly report, Target sales were up 2.3% to $678 million, with comparable store sales up 1.4%.

Target is a dark spot on an otherwise healthy retail business.

At Coles, food and liquor sales for the quarter were up 5.9% to $7.5 billion, way ahead of its major competitor Woolworths where sales are flat.

On the coal business, Wesfarmers expects to recognise a non-cash impairment of between $600 million to $850 million pre-tax ($420 million to $600 million post-tax).

This reflects a slower recovery in export coal prices and higher in exchange rates.

NOW READ: Target boss Stuart Machin has quit

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