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Retail drives Wesfarmers profit

Industrial conglomerate Wesfarmers Limited (ASX: WES) has reported a 9.3% rise in first half profit of $1.3 billion compared to the previous year. Earnings before interest and tax (EBIT) rose 5.5% to over $2 billion for the six months to December 2012, on revenues that topped a record $30 billion.

As an interesting aside, in 2008, the first full year that included revenues from the Coles division, Wesfarmers reported revenues of $33.6 billion, suggesting that revenues will go close to doubling in 2013/14, or just five years.

Coles’ food, liquor and petrol driving performance

Department store retailing continues to drive the company’s results, with Coles’ EBIT rising 15%, Kmart continuing its turnaround with a 25% rise in EBIT, although Target continues to disappoint, with earnings dropping 20% to $148 million.

Falling coal prices have hammered the Resources division’s earnings, which fell 63% to just $93 million while Office supplies (Officeworks), Home improvement (Bunnings hardware), insurance and chemicals, energy & fertiliser divisions all posted rising earnings.

In other good signs, finance costs have fallen 13.3%, and net capital expenditure is also down, dropping 11.3% to $1.1 billion.

For income-oriented investors, Wesfarmers declared a fully franked interim dividend of 77 cents, a 10% rise over the previous corresponding period. The company says it is cautiously optimistic about the second half, despite difficult conditions in the Resources division. CEO, Richard Goyder said that he expects continued growth from the retail businesses.

Foolish takeaway

Trading on a P/E ratio of over 21, compared to Coles’ competitors Woolworths Limited (ASX: WOW) and Metcash Limited (ASX: MTS), Wesfarmers looks expensive at current prices, although a growing, fully franked dividend yield of over 4% is nothing to be sneezed at.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, 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.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in Woolworths.

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