Wesfarmers [ASX:WES] Revenue Climbs and Shareholders Reap Returns

Bunnings, Kmart, Target, and Officeworks’ mother-company Wesfarmers [ASX:WES] posted a satisfying round of revenue and profits for the half-year ending 31 December 2022.

Overall group revenue went up 27% from $17.7 billion at the same time last financial year to $22.5 billion in the last six months.

Earnings before interest and tax (EBIT) also climbed 13.4% to a total of $2.1 billion.

As a result, the group’s interim ordinary dividends increased by 10%.

WES was worth $50.03 a share this morning, having risen around 3%, boosting the share price to 9% up in the year, despite its 10% deficit to the market average.

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Wesfarmers’ bricks-and-mortar businesses are back

Wesfarmers reported a statutory net profit after tax (NPAT) of $1.384 billion for the half-year, an increase of 14.1% on the prior year.

Full group revenue came to $22.5 billion, up 27%, and EBIT climbed 13% from $1.9 billion to $2.1 billion.

Wesfarmers saw continued resilience in Bunnings’ operations, with the DIY Home segment earning revenue of $9.8 billion — a 6.3% increase boosted by strong growth in commercial customers and sales, despite wet weather conditions on the east coast.

Bunnings’ EBIT increased by 1.5% to $1.28 billion for the December half.

Kmart improved by 24.1% to $5.7 billion, hitting solid underlying momentum and growing sales volume compared with lockdown-inflicted trade.

Officeworks also saw an earnings increase as normalised demand returned with strengthening margins, though offset by price increases and higher promotional activities. Officeworks’ EBIT increased by 3.7% to $85 million.

However, the group’s online retail business Catch was not as lucrative within those six months, taking a loss of $108 million, worse than the $44 million hit taken last year.

Still, Wesfarmers was able to boost its first-half dividend by 10% from 80 cents last year to 88 cents in the first half of 2023.

High cost of living pushes consumes to value based shopping

CEO of Wesfarmers, Mr Rob Scott, said that higher living costs and energy hikes fuelled by inflationary pressure have already seen customers turning to better value options — the likes of which can be found in businesses like Bunnings, Target, and Kmart.

The group is beginning to see some of its segments’ growth rates slowing. However, it is pinpointing growth in both new investments and its Health segment — not to mention advancing progress on constructing its Mt Holland lithium project.

Mt Holland’s re-strip mining is already in progress, having mined its first ore and stockpiled the products at the end of December last year. WES says the project is now 70% complete.

WES reported operating cash flows had increased by 26.7% to $1.9 billion for the half, but this was offset by higher earnings and lower tax thanks to the timing of payments.

Wesfarmers maintains significant balance sheet flexibility, ready to support continued investment activity across the business and ‘providing capacity to manage the risks and opportunities under a range of economic scenarios’.

Regards,

Mahlia Stewart,

For The Daily Reckoning

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