The Wesfarmers Ltd (ASX: WES) share price is down 6% after the blue chip ASX share reported a mostly disappointing result.
Wesfarmers is the parent company of several of Australia’s leading retail names including Bunnings, Catch, Officeworks and Kmart.
Wesfarmers profit drop
The underlying result was underwhelming. Revenue fell by 0.1% to $17.76 billion, whilst net profit after tax dropped 14.2% to $1.2 billion.
Wesfarmers put the blame for the result firmly on COVID and various impacts.
Across the retail businesses, there were around 34,000 store trading days impacted by trading restrictions. That was almost 20% of the total trading days for the half. There were 20,000 store days where stores were completely closed to customers.
On top of store closures, there were higher operating costs. Stock availability was also impacted by ongoing supply chain disruptions and increased levels of staff absence.
Is it all that bad?
For Wesfarmers to lose 6% of its market value is pretty significant for such a large business. Keep in mind that store closures no longer seem to be a thing. Australia is now “living with COVID”, no more lockdowns. So that impact was a one-off.
The local supply chain issues may be stabilising too. Isolation rules have been significantly relaxed and total case numbers are seemingly coming down.
There’s still a major question about the global supply chain, the costs of shipping and inflation. This could have an influence on the Wesfarmers share price for some time.
Diversification and growth initiatives
I am pleased with the direction that Wesfarmers is taking the business. I like that Wesfarmers has the freedom to invest into other sectors. It can go beyond retail, if it wants to. And it is.
Wesfarmers says it’s investing in building platforms for future growth, delivering good progress on the construction of the Mt Holland lithium project and progressing the proposal to acquire Australian Pharmaceutical Industries Ltd (ASX: API). A health and beauty segment would be a smart move.
Strengthening the Bunnings offer is another focus of the company. It has completed the Beaumont Tiles acquisition as well as expanding Tool Kit Depot into Western Australia.
Dividend cut
To me, it seemed a bit strange to return $2.3 billion of surplus capital to shareholders in a ‘capital return‘ in December 2021 and then cut the dividend. But that’s what has happened.
Wesfarmers’ half-year dividend was cut by 9.1% to $0.80 per share. If I were a shareholder, I’d have preferred slight growth of the dividend and less of a capital return.
Final thoughts on the Wesfarmers share price
I think Wesfarmers is one of the best blue chips on the ASX, perhaps the best. The flexibility to expand into different sectors is very useful for the ultra-long-term.
Apart from the brief crash a few weeks ago, the Wesfarmers share price hasn’t been this low for almost a year. I’d be happy to make a small purchase of Wesfarmers shares because of the quality of the underlying businesses. It’s one of my preferred ASX dividend shares in the ASX 200 (ASX: XJO).
