The Wesfarmers (ASX: WES) share price is up after providing the market with a business update.
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.
What did Wesfarmers announce?
Wesfarmers said that it has been working on enhancing its digital offering whilst also responding to an increase in online sales.
One initiative is ‘Drive & Collect’ by Bunnings and Officeworks to enable contactless car park collection by customers. The company has converted three Kmarts into ‘dark’ stores to support its online business.
In New Zealand some Kmart and Bunnings stores are still closed. There’s a similar situation in north west Tasmania.
Trading update
Over the last two months Bunnings and Officeworks have experienced significant demand growth as customers and their families spent more time working, learning and relaxing at home. Sales growth in Bunnings and Officeworks for the third quarter and first three weeks of April have increased compared to what was achieved in the first half of FY20.
For Kmart and Target, sales growth in the third quarter was similar to the first half with strong online sales. Catch has achieved “very strong” growth. However, in-store sales have moderated at Kmart and significantly declined at Target. Fixed rent costs and lower sales are causing lower profit margins, as well as higher costs of online fulfillment.
Target review
Whilst Kmart remains profitable, Target earnings have decreased significantly. Wesfarmers is now reviewing a range of actions to improve shareholder returns and assess options for a commercially viable Target.
Is Wesfarmers a buy?
Wesfarmers has been improving its balance sheet. It also increased its available debt facilities by $2 billion to around $5.3 billion with the price lower than the current overall cost of debt. I think Wesfarmers is one of the best-placed ASX 20 shares to do well during this time. But it’s certainly not cheap and an ongoing economic recession could be painful even for Wesfarmers.
These growing technology shares could be better long term picks due to their prospects and smaller size:
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Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.
