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Wesfarmers share price on watch after cautious outlook overshadows strong FY 2020 result

Bunnings
Photo credit: AS 1979

The Wesfarmers Ltd (ASX: WES) share price will be on watch on Thursday following the release of its full year results.

How did Wesfarmers perform in FY 2020?

For the 12 months ended 30 June 2020, the conglomerate reported a 10.5% increase in revenue from continuing operations to $30,846 million. This reflects strong sales growth from Bunnings, Kmart, Officeworks, and Catch.

The Bunnings business was the star of the show and delivered a 13.9% increase in sales to $14,996 million. This was driven by demand for products during the pandemic as customers spent more time doing projects at home.

Supporting its growth were its Kmart and Officeworks businesses. Kmart recorded a 5.4% lift in sales to $6,068 million and Officeworks delivered a sizeable 20.4% lift in sales to $2,775 million.

The company also reported strong growth in online sales in FY 2020. They grew 60% for the year to $1.5 billion excluding the Catch business. This lifts to $2.1 billion including the ecommerce business. Management notes that this reflects continued shifts in customer shopping preferences and its enhanced digital offering.

On the bottom line, Wesfarmers reported an 8.2% increase in net profit after tax from continuing operations (excluding significant items) to $2,099 million. This represents earnings per share of 185.6 cents.

This profit excludes $3,570 million of significant items and discontinued operations. This is primarily relating to the Coles demerger, but also includes the writing down of the value of the Target business by $525 million, $110 million in restructuring costs, and a $310 million impairment against the value of its industrial and safety businesses.

Final and Special Dividend.

Wesfarmers has declared a fully franked final dividend of $0.77 per share, bringing its full year dividends to $1.52 per share. This is down from $1.78 per share in FY 2019.

However, the Wesfarmers board has declared a special fully franked dividend of 18 cents per share. This reflects the after-tax profits realised from the sale of some of its Coles Group Ltd (ASX: COL) stake.

Outlook.

Management warned that the outlook for its key Bunnings business remains highly uncertain because of the pandemic.

It commented: “Trading performance likely to moderate as extraordinary growth in the second half likely to have pulled sales forward from FY21 in some categories. Weaker economic conditions expected in Australia and New Zealand with gradual removal of financial support measures from government, banks and landlords likely to impact housing and renovation activity.”

In addition to this, management notes that the outlook for the Officeworks business remains uncertain, with changing customer shopping patterns and COVID-19 measures expected to impact trading conditions in FY 2021.

Things may be a little more positive for the Kmart Group, which management believes is well-positioned to deliver sustainable long-term returns even in an uncertain environment.

It concluded: “The Group will continue to develop and enhance its portfolio, building on its unique capabilities and platforms to take advantage of growth opportunities within existing businesses, recently acquired investments and to pursue transactions that create value for shareholders over the long term.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and 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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