Is now an opportunity to buy Wesfarmers?

Wesfarmers (ASX: WES), the conglomerate that owns Coles, Target and Bunnings, announced lower than expected first quarter sales figures today. The share price fell more than 2% in early trade, before recovering most of those losses in the afternoon.

The worst divisional performer was discount retailer, Target, where sales fell 6.1%. The disappointing numbers were attributed to clearance of excess inventory and different promotional patterns compared to the prior corresponding period. In comparison, another discount retailer owned by Wesfarmers, Kmart, saw sales up 4.6% on the prior period.

The flagship supermarket business, Coles, posted a 4.9% gain in total sales versus the prior corresponding period. The company said the result was impacted by significant price deflation on food and liquor during the quarter, with price deflation on fresh food products being particularly acute.

All eyes will now be on the first quarter results of rival Woolworths (ASX: WOW) to be released on October 31. Coles’ net profit grew 13.1% in the prior financial year compared to a 24% rise for Woolworths. The fight for market share continues, with the high cost of living an important issue for many Australians. Both supermarkets aim to lure shoppers through promotions, discounting and loyalty programs.

Income-orientated investors should note that Wesfarmers trades on a slightly higher current dividend yield of 4.3%, compared to approximately 3.9% for Woolworths. Both businesses have defensive earnings streams for investors who are looking for consistent returns and a margin of safety.

Foolish takeaway

Investors in it for the long-term should look to take advantage of any short-term valuation dips in rock-solid businesses like Wesfarmers. Today’s results demonstrate the consistent if unspectacular nature of its business model. At the right price Wesfarmers is a worthwhile addition to any investor’s portfolio.

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Motley Fool contributor Tom Richardson does not own shares in any of the companies mentioned in this article.

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