Why the Wesfarmers Limited share price is soaring today

Shares in the operator of Coles supermarkets, Wesfarmers Limited (ASX: WES), lifted 1.7% to $41.70 this morning after the group posted strong same-store sales growth for the third quarter of financial-year 2016.

Same store food and liquor sales were up 4.4 per cent over the prior corresponding quarter when adjusting for the earlier timing of Easter in what is a positive results for its supermarkets business. For the financial-year to date overall food and liquor sales were $5.9 billion, up 5.9 per cent on the prior corresponding period.

The strong same-store sales growth suggests Coles is continuing to win market share from struggling rival Woolworths Limited (ASX: WOW), which has suffered from falling same-store sales due to uncompetitive pricing and mismanagement.

However, Wesfarmers is far from just a supermarket operator and its home improvement business Bunnings continues to power ahead with double-digit sales growth during the quarter and a strong outlook based partly on the failure of Woolworths operated rival Masters Home Improvement.

Bunnings’ success is a big part of the investment case for Wesfarmers, with Bunnings’ total sales for the quarter of $2.6 billion more than a quarter of those achieved by the Coles food and liquor business at $9 billion.

Wesfarmers also recently announced plans to move the Bunnings brand into the giant UK home improvement market via the $705 million acquisition of the UK’s Homebase brand. This looks a long-term value creation opportunity with Wesfarmers’ management proven performers in the home improvement space.

Wesfarmers’ discount department store Kmart also performed strongly, with the weak spot being the underperformance of Target, which saw comparable store sales slip 0.8% for the quarter.

Overall, the investment case for Wesfarmers shares looks good based on the strong same-store sales growth at its supermarkets, dominance of its Bunnings business, and competitive advantages it possesses due to its buying power and scale. Selling for $41.70 the shares look a buy in my opinion.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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