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Wesfarmers (ASX:WES) share price on watch after FY 2021 trading update

retail shares wesfarmers

All eyes will be on the Wesfarmers Ltd (ASX: WES) share price this morning following the release of a trading update ahead of its virtual annual general meeting.

How is Wesfarmers performing in FY 2021?

This morning Wesfarmers’ Managing Director, Rob Scott revealed that the company has had a pleasing start to the year.

He commented: “Despite the challenging operating environment, the results across the Group’s retail businesses reflect their continued focus on meeting the changing needs of customers and delivering greater value, quality and convenience while providing safe and trusted environments for customers to shop.”

He notes that significant demand growth has continued in Bunnings, Officeworks, and Catch following the strong results reported in the second half of the 2020 financial year.

Trading update.

The key Bunnings business has arguably been the star of the show. At the end of October, the hardware giant’s year to date sales were up 25.2% over the prior corresponding period.

This was driven by a 30.9% increase in comparable store sales. This metric excludes stores impacted by government-mandated temporary closures in Melbourne and Auckland.

Management notes that its strong sales growth has continued in both consumer and commercial segments. Consumer sales remained particularly strong as customers spent more time undertaking projects around the home.

The Kmart business has been performing well despite wide-spread store closures. It delivered 3.7% sales growth year to date. Comparable store sales were up 9.4% over the period.

Things weren’t quite as positive for the Target business, which has recorded a 2.2% decline in sales year to date. This is despite comparable store sales rising 9.9% over the prior corresponding period.

Management advised that continued growth in home, active, and kids categories was partially offset by lower customer demand for apparel products. In addition to this, the government-mandated temporary closure of 38 Kmart stores and 32 Target stores in Melbourne impacted sales, partially offset by very strong online growth.

Excluding its Melbourne stores, both Kmart and Target delivered sales growth of 12.1% and 7.8%, respectively.

The Officeworks business has continued its strong form and reported year to date sales growth of 23.4%. Its sales growth has been supported by strong demand for technology and home office furniture products. However, its margins have continued to be impacted by changes in sales mix. This is particularly the case across Melbourne stores where higher margin categories, such as office supplies and print, copy & create, were disproportionately impacted.

The company’s online Catch business was a very strong performer. It reported a 114.4% increase in gross transaction value during the first four months of FY 2021.

Management advised that it experienced strong growth in both its in-stock and marketplace segments. Furthermore, at the end of October Catch had 2.7 million active customers, compared to 2.3 million active customers at the end of the 2020 financial year.

Catch is continuing to invest significantly in technology, marketing and enhancements to its customer offer to further accelerate growth in gross transaction value.

Finally, the company’s industrial divisions have made a pleasing start to the year. In Chemicals, Energy and Fertilisers, demand for ammonium nitrate remains resilient but, as always, management warned that the outlook for the division is dependent on commodity prices and seasonal conditions.

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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 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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