The Wesfarmers Ltd (ASX: WES) share price will be on watch today after announcing a 14% fall in profit for the first half of FY22.
Wesfarmers operates five main divisions: Bunnings, Kmart Group, Officeworks, WesCEF (Chemicals, Energy and Fertilisers) and Industrial & Safety.
If you’re new to the business, check out our 2-minute guide to Wesfarmers.
Wesfarmers share price on watch after profit and dividend cut
The Wesfarmers share price could be heading lower today after headline growth receded.
Key financial results for the half ending 31 December include:
- Revenue of $17.8 billion, effectively flat year-on-year YoY
- Net profit after tax (NPAT explained) of $1.2 billion, down 14.2% YoY
- Interim dividend of $0.80 per share, down 9.1% YoY
Management cited this half had been the most disruptive period since the onset of the pandemic in March 2020.
Across its retail network, 34,000 trading days or 20% of its total opening hours was impacted by trading restrictions. This included over 20,000 store days where stores were completely closed.
Additionally, Wesfarmers was plagued by supply disruptions and heightened employee absenteeism, which resulted in $80 million in one-off costs and limited stock availability.
Normalising for the one-off costs, profit was largely unchanged illustrating underlying resilience and growth potential.
Bunnings growth moderates, Kmart struggles continue
Wesfarmers share price has historically been supported by strong growth in its Bunnings segment.
Despite achieving sales growth again in the first half, Bunnings’ earnings slipped 1% for the half.
WesCEF was the standout performer with earnings growth of 36.3% as a result of elevated commodity prices.
Industry and Safety also increased earnings by 10.8%, albeit off a low base.
Officeworks and Kmart Group struggled the most, with earnings falling 18.0% and 63.4% respectively.
The aforementioned store closures, elevated inventory levels and continuing to financially support staff despite lockdowns all weighed on the bottom line.
What’s next for the Wesfarmers share price?
Management highlighted it has accelerated technology investment to create a leading data and digital ecosystem.
Wesfarmers also expanded its loyalty offering Flybuys to both Bunnings and Officeworks customers.
Its Club Catch program has been rebranded to OnePass, akin to Amazon.com Inc (NASDAQ: AMZN) Prime membership.
The business is also undertaking several growth initiatives including the Mt Holland lithium project, completion of Australian Pharmaceutical Industries Ltd (ASX: API) and Beaumont Tiles acquisitions and the expansion of Tool Kit Depot into WA.
Wesfarmers highlighted that it will continue to be impacted by supply chain constraints and potentially elevated costs:
“Economic conditions in Australia are favourable, with strong employment and high levels of accumulated household savings, but the Group continues to actively monitor increasing inflationary pressures”.
