Why the Wesfarmers Ltd share price is falling

Credit: Target

Last week, shares in Wesfarmers Ltd (ASX: WES) fell 0.9%.

That wasn’t a particularly bad performance considering the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) fell 1.3% and more crucially considering there were reports of accounting issues at its subsidiary department store business Target.

Pressure ahead?

Late on Friday evening the company released an announcement which stated that the Managing Director of Target, Mr Stuart Machin had announced his resignation “effective immediately”.

In explaining his departure, Mr Machin commented that:

“Latterly, I have been dismayed to learn of the accounting issues at the half year. I was not aware of these, but they happened on my watch and as Managing Director I accept my share of the responsibility. The right thing is now to move on.”

The language and actions of Mr Machin are certainly refreshing considering how regularly investors see boards and managers failing to accept responsibility.

What to expect now

Included in Friday night’s announcement was a statement from Wesfarmers’ Managing Director Mr Richard Goyder noting that:

“Wesfarmers has acted promptly to launch a comprehensive investigation, the outcome of which will soon be finalised.”

 Mr Goyder’s comment suggests investors could know more as early as this week.

While the market may be in a “shoot first, ask questions later” frame of mind regarding these developments at Wesfarmers, it does appear that this is an isolated and containable accounting issue.

Considering the high-quality businesses owned by the group which include Coles and Bunnings and the growth opportunities from expansion of Bunnings into the UK, long-term investors could be better off viewing any short term selling pressure as a potential buying opportunity.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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