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Retail therapy works for Westfield

Westfield Group (ASX: WDC) shareholders will be pleased to see that rumours of the death of the consumer have been greatly exaggerated, with the company delivering a very strong headline net profit growth of 31% to $800m for the company’s first half.

Much of that growth is due to accounting adjustments, with the more business-focussed ‘funds from operations’ giving a better sense of the company’s ongoing earnings. On this measure, growth was a much more moderate 3.1% — still a strong result given the soft retail environment over the past year.

Westfield reiterated that it expected to deliver its full-year profit forecast and dividend of $0.65 from operations and $0.495 in distributions to shareholders.

Australia and New Zealand continue to be the strongest parts of Westfield’s business, as you’d expect given our economies’ escape from much of the worst of the GFC. The good news for the company is that it managed to deliver earnings growth (on a ‘funds from operations’ basis) in the United States and a flat result in the UK.

Remarkably, ‘specialty store’ sales growth for Wesfield’s US centres was a very strong 8.7%, perhaps showing early signs of a US retail recovery.

Westfield also has a total development pipeline of $11 billion, of which the company will fund half (the remainder coming from development partners). $1.5b of those are due to commence in the second half of this financial year and the next full financial year.

Westfield shares have performed strongly this year, having rallied from just over $8.00 12 months ago and around $7.75 at the beginning of 2012, to be around $9.70 in early trade today.

The A-REIT sector as a whole has been enjoying a return from the depths of the GFC, with stable-mate Westfield Retail Trust (ASX: WRT), CFS Retail Trust (ASX: CFX), and Dexus Property Group (ASX: DXS) all joining Westfield in posting solid gains.

Foolish takeaway

Investors who expect retail to rebound could do much worse than investing in Westfield, especially given its exposure to the US and UK markets that will see a stronger rebound (given a larger fall in prior years), and to the growth markets of South America where Westfield is establishing a beachhead.

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Scott Phillips is an investment analyst with The Motley Fool. He owns shares in Westfield Group and Westfield Retail Trust. You can follow Scott on Twitter  @TMFGilla The Motley Fools purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691)

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