The Wesfarmers Ltd
(ASX: WES) share price is up 3% as the owner of Bunnings impressed in its FY23 half-year result.
Wesfarmers is the owner of some of the biggest retailers in Australia, including Bunnings, Kmart, Target, Officeworks, Catch and Priceline.
HY23 result
Here are some of the main highlights from the result:
- Revenue increased 27% to $22.56 billion
- Revenue excluding the acquired Wesfarmers Health rose 11.4% to $19.78 billion
- Earnings before interest and tax (EBIT explained) went up 13.4% to $2.16 billion
- Net profit after tax (NPAT) increased 14.1% to $1.38 billion
- Profit / earnings per share (EPS) improved 14% to $1.22
- Interim dividend increased by 10% to $0.88 per share
Division breakdown
The business benefited from the fact that there were COVID lockdowns in the prior corresponding period of HY22. That’s a key reason why Kmart Group saw earnings before tax (EBT) growth of 114% to $475 million.
Bunnings continued to demonstrate the “resilience of its operating model”, with sales growth across all major trading regions, with strong growth from commercial customers and continued growth in consumer sales. Bunnings EBT rose 1.5% to $1.28 billion. This is the key factor for the Wesfarmers share price because of how much of the profit it generates.
Officeworks saw continued sales growth, as well as a normalisation of demand for higher-margin categories, though it did increase its product discounting. Officeworks EBT increased 3.7% to $85 million.
Wesfarmers chemicals, energy and fertilisers (WesCEF) is still benefiting from elevated prices for ammonia and related products, as well as increased production due to continued “strong plant operating performances and the impact of cycling a major planned shutdown that was completed in the prior corresponding period.” WesCEF EBT jumped 48.6% to $324 million.
It continues to invest for growth, with “pleasing progress” on the construction of the Mt Holland lithium project – construction of the concentrator is “well advanced” and pre-strip mining in progress, with first ore mined and stockpiled in December 2022.
Wesfarmers Health – which includes Priceline – reported improved trading results, and progress on the division’s transformation plan “accelerated”. This division agreed to increase its stake in the digital health business SiSU to 60%. SiSU provides health stations in Priceline stores for customers to measure key health metrics.
The company also revealed it made a non-controlling investment in Tecsa, a UK-based specialist customer data and loyalty analytics consultancy business.
Outlook for the Wesfarmers share price
Management said the company is focused on the long-term and continues to invest to strengthen existing businesses and develop platforms for growth.
The economic situation is expected to mean more households being value conscious, which could mean its retail businesses are well-positioned to meet this changing customer demand.
Retail trading in the first five weeks of the FY23 second half were “broadly in line” with growth reported for the first half, with strong growth for areas most affected by COVID disruptions in January.
However, elevated business costs are expected to continue in the second half. But, the company is working on productivity and efficiency initiatives.
WesCEF is expected to benefit from favourable commodity prices in the second half. It’s continuing discussions with key lithium customers. First earnings for Mt Holland is expected in the first half of the 2024 calendar year.
I think Wesfarmers is one of the best ASX shares, with Bunnings being one of the strongest businesses in the country. The Wesfarmers share price has risen 10% this year, so it’s not as cheap as I’d like. But, I think investors can still do well over the long-term at the current price, particularly with the tailwind of population growth.
