Coles' earnings have fallen for the first time since its acquisition by Wesfarmers nine years ago, as its sales growth slowed further amid stiff competition.
Results released on Thursday show the supermarket chain's comparable food and liquor sales, a crucial measure of revenue growth, rose one per cent in 2016/17 - a significant slowdown from 4.1 per cent growth a year ago.
Coles' earnings before interest and tax decreased 13.5 per cent to $1.61 billion - the first earnings decline since Wesfarmers acquired the business in 2008.
The decline was expected by analysts as rival Woolworths' recent multi-billion dollar spend on lowering prices has seen its like-for-like food sales growth outpace that of Coles.
Wesfarmers warned that Coles' sales and profitability will 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," the conglomerate said as it released its full-year results.
"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."
Wesfarmers chief executive Richard Goyder said he expects Coles will return to earnings growth over the long term.
Wesfarmers' full-year profit of $2.87 billion, which largely met market expectations, was helped by strong earnings from its hardware business Bunnings.
Bunnings' Australia and New Zealand earnings jumped 10 per cent to $1.33 billion.
However, 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.
Wesfarmers' statement to the ASX said the group remains "generally optimistic" in its retail businesses' outlook with ongoing improvements in merchandising expected to drive earnings growth.
Shares in Wesfarmers were up 92 cents, or 2.2 per cent, at $42.67 by 1033 AEST.
WESFARMERS PROFIT AT A GLANCE:
* Net profit up 22pct to $2.87b
* Revenue up 3.7pct $68.4b
* Final dividend, fully franked, $1.20 a share, up 35 cents
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