Wesfarmers (ASX: WES) has updated the market this morning about its retail trading with the ongoing COVID-19 pandemic.
What is Wesfarmers?
Wesfarmers is a 100-year-old conglomerate which at various times has owned and operated some of Australia’s largest retail brands such as Kmart, Target and more. Today, its largest business is Bunnings Warehouse, the number-one DIY home improvement business.
Here’s what Wesfarmers revealed
Following the easing of trading restrictions in New Zealand and north-western Tasmania, the company’s retail networks have returned to full operation.
Wesfarmers released two sets of numbers for each of its retail businesses. The sales growth for the second half of FY20 to 31 May 2020 (2H20) and FY20 in total to 31 May 2020 (FY20 YTD).
Bunnings sales growth in the second half to date was 19.2%, with 11.3% growth in the FY20 YTD.
Kmart sales growth in the second half to date was 4.1%, with 6.1% growth in the FY20 YTD.
Target sales decline in the second half to date was 1.8%, with a decline of 3.4% in the FY20 YTD.
Catch’s gross transaction value growth in the second half to date was 68.7%, with 43.7% growth in the FY20 YTD.
Officeworks sales growth in the second half to date was 27.8%, with 19.3% growth in the FY20 YTD.
Wesfarmers said that significant demand growth has continued in Bunnings and Officeworks as customers continue to spend more time working, learning and relaxing at home. However, the company isn’t sure if the demand will continue for the rest of 2020 considering the expected future changes to government measures.
How the company is dealing with COVID-19
Bunnings has spent around $20 million on additional cleaning, security and protective equipment over the past three months. The hardware giant will also show costs of approximately $70 million in FY20 relating to trading restrictions in New Zealand, the permanent closure of seven small-format stores, the accelerated rollout of its online offering (including writing off old ecommerce assets).
Kmart and Target have seen an increase of foot traffic in shopping centres. However, weekly sales performance remains “highly variable”. Kmart has seen high demand for home and living ranges, resulting in stock shortages. COVID-19 measures will also hit earnings in FY19. Club Catch subscriptions continue to grow.
Is it time to buy Wesfarmers shares?
Total online sales across Wesfarmers (excluding Catch) has increased by 60% to $1.4 billion in the financial year to date, or $1.9 billion including Catch.
At a share price above $40, Wesfarmers is clearly priced as though investors are expecting some long term success. I think Wesfarmers is one of the best ASX blue chips to own, along with ones like CSL (ASX: CSL).
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Disclosure: At the time of writing, Jaz doesn’t own shares in any of the businesses mentioned.
