Shares in Wesfarmers (ASX: WES) were up around 2% at the open after the Perth-based conglomerate, whose retail chains include Officeworks, Bunnings and Kmart, reported a better-than-expected 2.9% lift in interim profit of $1.467 billion, 2% above market expectations.
CEO Rob Scott told investors that the conglomerate is well placed to improve earnings and returns through its transformation program and capitalising on long-term sector tailwinds.
However, in the next breath, Scott also warned the market to expect higher domestic cost-of-living pressures – driven by labour, energy and supply chain costs, plus weakness in the A$ - and business costs to continue climbing.
Scott noted that proactive efficiency and digitisation initiatives helped mitigate higher costs, while enabling divisions to enhance customer experience.
“The Group's largest divisions performed well, with Bunnings and Kmart Group's everyday low prices, market-leading offers and strong execution driving growth in transactions, sales and earnings," he said.
"The retail divisions benefited from households prioritising value, and from new and expanded ranges and offerings that helped grow their addressable markets.”
Health division, WesCEF outperform
Despite retail pressures, earnings were up 4.7% to $2.3 billion on group sales of $23.5 billion, up 3.6% and in line with market expectations.
The conglomerate’s recently established health division, which includes the Priceline chain and the recently acquired Silk laser clinics posted an 8.9% lift in interim sales to $3.022 billion.
However, the star performer during 1H FY25 was the WesCEF segment, which recorded a 9.5% increase in sales to $1.2 billion after receiving a kicker from better-than-expected spodumene concentrate sales and higher fertiliser sales volumes.
The board paid a higher interim dividend at 95¢ per share up from 91¢ a year ago and slightly more than the market expected.
1H FY25 highlights today include:
- Bunnings earnings up 3.1% to $1.322 billion and sales up 3.1% to $10.26 billion.
- Kmart group earnings up 7.2% to $644 million and sales up 3.1% to $10.26 billion.
- Officeworks earnings up 1.2% to $87 million and sales up 4.7% to $1.75 billion.
- Online marketplace Catch sales down 18.6% to $258 million.
Outlook
While Scott offered no guidance for the remainder of FY25 he revealed that the retail divisions continued to trade well in the first six weeks of the second half.
Recent portfolio actions, including the sale of Coregas and the decision to wind down Catch and transition its assets and capabilities.
OneDigital continues to accelerate the conglomerate’s data and digital ambitions, while work is underway to accelerate the development of its retail media network across the retail and health divisions.
Wesfarmers and its joint venture partner remain focused on the development of the Covalent lithium project, an integrated lithium mine, concentrator and refinery.
Covalent is expected to complete construction and commissioning of the refinery with the first product in mid-calendar year 2025, in line with the guidance provided in the 2024 full-year results.
Meanwhile, WesCEF’s share of capital expenditure for the project remains in line with guidance provided in the 2023 half-year results.
While the conglomerate's industrial businesses remain subject to international commodity prices, FOREX rates, and seasonal outcomes, Scott said Wesfarmers Health is well positioned to improve earnings and returns.
The conglomerate expects net capital expenditures of between $1,100 million and $1,300 million for FY25.
Wesfarmers' market cap is $88.5 billion making it the 6th largest stock on the ASX; the share price is up 22% over one year and is up 9% year to date.
WES is in a strong bullish trend confirmed by multiple indicators. Specifically, the 5-day moving average of the stock price is above the 50-day moving average.
Citi views the result as an earnings beat and a solid trading update for Wesfarmers; the current consensus price target of $66.83 suggests a downside of 12.8% (ex-dividends).
Some analysts believe Wesfarmers shares are overvalued without any material boost to future earnings forecasts.
Consensus is Moderate Sell.
This article does not constitute financial product advice. You should consider independent advice before making financial decisions.
