Is the Wesfarmers (ASX: WES) share price after giving a COVID-19 update to the market?
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.
Wesfarmers’ COVID-19 update
Wesfarmers said that the first phase of the Target review has identified actions to accelerate the growth of Kmart and address the “unsustainable” financial performance of Target.
The conglomerate said actions include the conversion of suitable Target stores to Kmart stores, the closure of a number of Target stores and a restructuring of the Target store support office.
What about staff? Wesfarmers thinks there are redeployment opportunities in Kmart and other Wesfarmers businesses to minimise the effect on Target team members.
Wesfarmers FY20 significant items
The company expects to recognise restructuring costs and provisions in Kmart Group of approximately $120 million to $170 million before tax which will be for Target store closures, inventory write-offs and the Target support office.
Kmart Group will also see an impairment of Kmart Group of between $430 million to $480 million before tax which includes an impairment of the Target brand name.
Wesfarmers is also going to recognise an impairment of $300 million before tax of goodwill for the industrial and safety division.
Wesfarmers Managing Director Rob Scott said: “For some time now, the retail sector has seen significant structural change and disruption, and we expect this trend to continue. With the exception of Target, Wesfarmers’ retail businesses are well-positioned to respond to the changes in consumer behaviour and competition associated with this disruption.
Is the Wesfarmers share price a buy?
It makes sense to recognise these impairments during the difficult COVID-19 times. Wesfarmers needs to make difficult choices to be able to keep growing profit into the future. Wesfarmers said the dividend won’t be impacted by the accounting impairments, though that’s not to say the difficult COVID-19 conditions won’t have an effect on the dividend in my opinion.
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Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.