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Wesfarmers share price higher following coronavirus update

The Wesfarmers Ltd (ASX: WES) share price is pushing higher this morning after the conglomerate gave a business update with regards to its recent performance in light of COVID-19.

Wesfarmers commented that since the beginning of this year, overall retail sales across the wider Wesfarmers group have continued to be in line with that for the prior six months of last year.

The group noted that Bunnings, Kmart and Officeworks all continue to see strong sales growth and in particular, there has been strong growth in its online sales segment.

Bunnings and Officeworks see increased demand as coronavirus spreads

Wesfarmers commented on the vital role that Bunnings and Officeworks have played in the coronavirus crisis by providing essential goods to its consumers and businesses. Products that were noted as being in high demand include cleaning and hygiene products, as well as home office equipment, technology and education supplies, as more businesses and students prepare for the possibility of working from home.

Other companies that are in some way benefiting from the coronavirus crisis include Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL).

Wesfarmers’ industrial businesses were noted to be performing generally in line with expectations. However, the group did comment that the Saudi contract price has had an impact on prices in the energy segment of its business which covers Chemicals, Energy and Fertilisers.

The group’s Industrial and Safety businesses are seeing high demand for a range of critical products that can be used to combat the coronavirus, including essential protective clothing, cleaning and hygiene products and medical gases. However, there has been some overall decline in other areas as customers reduce their spending in non-essential items.

Supply chains now improving

Wesfarmers commented that more than 90% of its supplier factories are now in full operation and many are returning to full capacity.

The group has been working behind the scenes since January with suppliers and logistics providers to ensure that there is as minimal disruption as possible in these areas. International freight operations were noted to be generally performing as normal.

Wesfarmers acknowledged that there have been low supplies of some product categories as a result of unusually high demand. However, it doesn’t see these shortages as having a major impact on its overall retail trading operations.

Weakness in discretionary spending

Wesfarmers did note that over the past few days, there has been weakness in sales for some discretionary items such as clothing, particularly in its national Target chain of stores.

The ASX conglomerate acknowledged that this trend is expected to continue and could impact retail sales across the wider Wesfarmers group. Additional operating costs with regards to responding to the coronavirus outbreak are also likely to occur.

Wesfarmers commented that it is not yet in a position to provide an estimate of the impact that the coronavirus will have on its full-year results, given the uncertainty of the situation.

On a positive note, Wesfarmers has a very strong balance sheet, strengthened by last month’s sale of 4.9% of its interest in Coles for approximately $1,050 million.

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Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers Limited. 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 Scott Phillips.

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