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Here’s why Wesfarmers Ltd has soared today

On a day when the overall S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) gained 0.5%, Wesfarmers Ltd (ASX: WES) has jumped 1.3% higher on Thursday thanks to a positive reception by the market to the group’s 2015 first quarter retail sales results.

The sales results were really nothing short of outstanding considering the size and market share which the group already commands.

Here are some of the highlights:

  • Coles food and liquor sales up 5.8% to $7.3 billion driven by improvements in all key metrics including customer transactions, basket size and fresh participation
  • Bunnings home improvement sales up a sensational 11% to $2.2 billion
  • Officeworks expanded sales by 8% to $403 million
  • Further gains in Kmart of 2.9% took sales revenue to $998 million

Only two lowlights:

  • A continued decline in the troubled Target business saw sales down 4.6% to $753 million
  • Convenience, which includes petrol sales slipped 2.3% to $1.9 billion

Two important takeaways:

There are two particularly important points to note from Wesfarmers’ quarterly sales result.

Firstly, the group continues to improve its underlying operating performance – particularly within the acquired Coles operations – this can be seen through the 5% gain in comparable food store sales.

Secondly, the group still has room to expand through store numbers. During the quarter the Coles store network expanded by three to 765, while the liquor business expanded by eight venues to 929.

Is it a buy?

In the past 12 months, Wesfarmers and rival Woolworths Limited (ASX: WOW) have both outperformed the S&P/ASX 200 Index, however, with gains of just 2.9%, 3.6% and 1.6%, it’s certainly nothing to write home about.

With the potential for further efficiency gains in the Coles business plus upside if Wesfarmers’ coal division improves, the blue-chip Wesfarmers looks like it could grow earnings at a faster pace than Woolworths, this scenario I’d suggest is already more that fully reflected in its share price.

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

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