Retail conglomerate Wesfarmers Ltd (ASX: WES) has reported a solid FY20 profit result which saw $2 billion of ordinary profit generated.
Wesfarmers announced its FY20 report today which showed that revenue increased by 10.5% to $30.85 billion.
The company’s continuing operations EBIT (click here to learn what EBIT means) was almost flat when excluding significant items – it fell slightly to $2.96 billion when excluding lease accounting changes.
Continuing net profit after tax, excluding significant items, rose by 8.2% to $2.1 billion. Operating cashflow went up by 32.3% to $3.6 billion.
The statutory profit came in at $1.71 billion. There were $386 million of significant items relating to restructuring the Kmart Group, impairments for Target, and the industrial and safety division, partially offset by gains on the sale and revaluation of the company’s investment in Coles Group Limited (ASX: COL).
Looking at the separate divisions, there was a mixed performance. These numbers are on a pre-AASB 16 lease accounting basis. The adoption of this accounting measure results in a reduction in occupancy expenses which is offset by an increase in depreciation and an increase in interest on lease liabilities.
Bunnings EBIT went up 13.9% to $1.85 billion. Revenue rose 13.9% to $15 billion. The business benefited from households looking to do DIY projects during the lockdown period. It invested in its digital offering to serve customers.
Kmart Group EBIT fell 23.5% to $413 million. Revenue rose 7.2% to $9.22 billion. Including impairments and payroll remediation costs, Kmart Group recorded a loss of $222 million. There was lower sales and higher clearance activity. Wesfarmers is taking action to help Kmart Group.
Officeworks EBIT rose 13.8% to $190 million. Revenue rose 20.4% to $2.8 billion. There was significant demand for home office, technology and learning & education products.
WesCEF EBIT dropped 9.2% to $393 million. Revenue was in line with last year. Chemicals and fertilisers had strong demand from customers, though energy saw a decline in revenue because of lower prices and lower sales volumes.
Industrial and safety EBIT fell 53.5% to $40 million. Wesfarmers said the performance was below expectations due to Blackwoods in the first half and lower demand for Workwear in the second half.
The board declared a final dividend of 77 cents per share. Wesfarmers also decided to pay a special dividend of 18 cents per share to reflect the sale of Coles shares. That brings the total dividend to $1.70 per share.
Wesfarmers is keeping enough money to make acquisitions if they arise.
Wesfarmers said that its sales growth in the second of half of FY20 has continued into July. Though government stimulus is scheduled to reduce and there have been trading restrictions reintroduced, which may impact sales. Kmart and Target have suffered from lower foot traffic, though Bunnings and Officeworks have continued to do well during August nationally. Online sales have increased significantly so far in FY21.
Some sales may have been brought forward by customers into the FY20 year rather than FY21.
This was a solid result by Wesfarmers under the circumstances. I’m not sure how much of it will be able to be repeated in FY21, but hopefully life and economic conditions across the entire country can return to normal later this financial year.
Wesfarmers is a great business, but I’m not sure it’s a clear buy today unless you’re just focused on dividend income. It’s priced at close to 30 times the estimated earnings (on CommSec). I’d rather buy an ASX growth share like Pushpay Holdings Ltd (ASX: PPH) for that price.