The Wesfarmers Ltd (ASX: WES) share price is on watch for its FY21 result and a massive capital return to investors.
Wesfarmers’ FY21 result
The diversified business reported more growth in its FY21 result.
Total revenue increased by 10% to $33.9 billion. There are two key divisions that generate the lion’s share of revenue and profit
Bunnings revenue grew 12.5% to $16.87 billion and its earnings before tax (EBT) grew 19.7% to $2.19 billion.
Kmart Group saw revenue increase by 8.3% to $10 billion, with EBT growth of 69% to $693 million. Catch’s gross transaction value rose by 41%.
Looking at the other divisions, Officeworks grew revenue by 8.7% to $3 billion and EBT increased 7.6% to $212 million.
Wesfarmers chemicals, energy and fertilisers (WesCEF) revenue rose 2.9%, though EBT fell 2.5% to $384 million for the year.
The industrial and safety division saw revenue rise 6.3% to $1.85 billion, with EBT surging 79.% to $70 million.
Looking at Wesfarmers’ overall result from continuing operations, EBIT grew 18.8% to $3.78 billion. Net profit after tax (NPAT) went up 16.2% to $2.4 billion and earnings per share (EPS) also rose 16.2% to $2.14. Profit is a key driver for the Wesfarmers share price over the longer-term.
Dividend and capital return
The board decided to pay a fully franked final dividend of $0.90 per share, taking the full year dividend to $1.78 per share. The full year dividend is an increase of 17.1% from last year.
Wesfarmers has also proposed to return $2.00 of capital per share to investors. Notice that this is bigger than the entire dividend Wesfarmers is paying for FY21.
The thinking behind the distribution is that it will ensure a more efficient capital structure for the group while maintaining balance sheet capacity to take advantage of acquisition opportunities as they arise.
This could provide a welcome boost for the Wesfarmers share price.
Trading update
The retail giant warned that its retail divisions have been impacted by recent lockdowns. There has been solid customer demand and trading results in areas less affected by lockdowns.
In the 2022 financial year to date, Bunnings has seen total sales fall 4.7%, Kmart & Target sales were down 14.3%, Catch’s gross transaction value was down 8.5% and Officeworks sales were down 1.5%.
Not only are sales down, but the company is experiencing COVID-19 costs, including higher picking and fulfilment costs to meet the needs of customers in affected areas.
Outlook for Wesfarmers and the share price
Wesfarmers says it’s well positioned to withstand a range of economic conditions and deliver satisfactory shareholders returns over the long-term.
It’s going to keep investing in its strategic initiatives. The business will continue to develop and enhance its portfolio, building its existing businesses and taking advantage of new opportunities such as the attempt to buy Australian Pharmaceutical Industries Ltd (ASX: API).
Wesfarmers is a great business. It’s something I’d be happy to own for the long-term. But at the current Wesfarmers share price I think it looks expensive considering sales are going backwards for all of its businesses. The lithium project is an exciting diversification prospect.
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