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https://thewest.com.au/business/bun...-roll-out-to-add-500m-to-sales-ng-b881890905z

Bunnings national tool store roll-out to add $500m to sales

Sean SmithThe West Australian
Fri, 4 June 2021 12:30PM
Sean Smith


Bunnings is looking to grab more of the home and commercial construction market. Credit: Bloomberg


Bunnings’ new nationals tools business is expected to rake in about $500 million in revenue by 2025, but analysts warned that the hardware chain’s own sales can be expected to take a hit.

The Wesfarmers-owned group revealed on Thursday that it expects to open up to 75 trades tool stores over the next three to five years, beginning in WA in the December half-year.

Bunnings is using the Adelaide Tools business bought 18 month as a launchpad, but stores outside of South Australia will operate under a new, yet-to-be-disclosed name.

Citi’s analysts estimates the chain will increase Bunnings’ annual sales by $500m and add between $40m and $50m to its earnings by mid-2025.
“However, we would expect some cannibalisation of Bunnings’ tool sales,” they said.

Citi also noted that the Bunnings expansion coincides with a race for market share in the professional tools sector that could squeeze family owned businesses.
Having bought Total Tools last year, Metcash is increasing store numbers from 88 to 130 stores. The 51-store Sydney Tools chain is also expanding.

Bunnings accounts for more than 60 per cent of Wesfarmers’ annual profit, which is expected to come in at about $2.3 billion for the 2020-21 financial year.
The group’s purchases of Adelaide Tools in October 2019 and floor tiler retailer Beaumont Tiles two months ago are part of a strategy aimed to capturing more of the home and commercial construction market by selling more to tradespeople.

Managing director Mike Schneider told Wesfarmers’ investor day on Thursday that the group would consider other stand-alone businesses in specialist sectors such as lighting, electrical and plumbing, where it is under-represented.

Analysts also appear reassured by signals that Wesfarmers has no intention of using its estimated $5b of financial muscle to fund a major acquisition, but will instead look at expanding its existing businesses or returning capital to shareholders.

“Large-scale acquisition appears to be unlikely, with the company instead focusing on investing in adjacencies to existing businesses where it has incumbency and scale advantages,” Credit Suisse said.

Likewise, Bank of America analyst David Errington conceded he was “more comfortable” with Wesfarmers after yesterday’s presentations.
“Over the past 2-3 years, Wesfarmers indicated that it was prepared to dilute short-term returns of shareholders, if it considered a long term investment attractive,” he said.
“The concern we had with this is that, with industries changing so rapidly and disruption happening in unpredictable ways, longer term investments were now inherently more risky.
“We are more comfortable that the company won’t make a returns dilutive investment than we were previously.”

Wesfarmers shares were 21¢ higher at $55.34 as at 12.25pm.