The shares of Wesfarmers Ltd (ASX: WES) have sunk 5% lower to $41.70 today after it released an underwhelming first-quarter result.
Although the company behind the Coles, Bunnings, Officeworks, Kmart, and Target brands delivered retail sales growth of 5.1% on the prior corresponding period to $14,965 million, this figure includes the new addition of Bunnings UK and Ireland.
If you take this out of the equation it means sales growth was up just 1.3% on the first quarter of FY 2016.
A real cause for concern in my opinion is the slowdown in comparable store sales at Coles supermarkets. Comparable store sales for food grew 1.7% in the first quarter of FY 2017, down from 2.9% in the fourth quarter of FY 2016.
This is now the third consecutive quarter of comparable sales growth declines for both food and liquor. With competition heating up from the likes of ALDI and Woolworths Limited (ASX: WOW), the Coles brand appears to be struggling for growth right now.
Coles Express sales also dropped, falling by 13.7% on the previous corresponding period. Management has pointed to lower fuel volumes and prices as being the reasons for this decline.
Once again the Target brand continues to struggle. Comparable store sales were down a staggering 21.9% in the first quarter. Management explained that lower promotional activity and a slow start to summer seasonal sales were largely to blame.
Thankfully it isn't all bad news. Although their performance is slipping a touch, Bunnings, Kmart, and Officeworks continue to produce strong results for the company.
Bunnings saw store-on-store sales growth of 5.5% in the quarter, down from 8.3% in the previous quarter. The ever-popular Kmart delivered comparable store sales growth of 8.2%, down from 9.6% last quarter. Finally, its Officeworks brand saw sales growth of 7.5% on the prior corresponding period.
Even after the drop in its share price today, I wouldn't recommend investing. At around 18x full year earnings, I wouldn't class its shares as being particularly cheap.
If I could just invest in the Bunnings and Kmart brands I would jump at the chance, but unfortunately the company as a whole just isn't investable at this point in time in my opinion.
