The Wesfarmers Ltd (ASX: WES) share price has rallied in recent weeks to a record all-time high of $51.90.
Its diversified business has proved to be resilient and in demand throughout COVID-19, as reflected by its strong earnings growth and dividend. At the time of writing, the Wesfarmers share price is trading 0.74% down at $50.87.
Wesfarmers share price higher on strong earnings
The Wesfarmers business generated revenue growth of 10.5% to $30.85 billion with net profit after tax increasing 8.2% to $2.1 billion in FY20. Bunnings, Kmart, Officeworks and Catch delivered strong sales growth for the year. Earnings in Bunnings and Officeworks were particularly strong and demonstrated the ability of these businesses to rapidly adapt to the changing needs of customers.
Bunnings achieved strong sales and earnings growth as customers spent more time at home and undertaking projects at home. Bunnings contributed $14.99 billion, or almost half the group’s revenue in FY20.
Throughout the year, Bunnings continued to execute its strategic agenda and accelerate the development of its digital offer. The Australian rollout of Click and Deliver was completed, the New Zealand e-commerce platform was launched and Drive and Collect offering was developed.
Kmart Group’s revenue from continuing operations increased 7.2% over the year. However, earnings were impacted by significant items associated with the restructure of target and payroll mediation costs. Kmart generated $9.2 billion in revenue, or 29.8% of the Group’s revenue.
In contrast, the financial performance of Target has been unsatisfactory and loss-making in FY20, said Wesfarmers managing director, Rob Scott. In May 2020, the company announced a number of actions to address its structural challenges, simplify Target’s operating model and deliver more value from the store network.
Officeworks was a standout performer in FY20 with earnings increasing 13.8%, driven by strong sales growth in stores and online. Officeworks contributes just under 10% of the Group’s total revenue. In the second half, it saw significant demand for technology, office furniture and learning and education products, as people spent more time working and learning from home.
The Wesfarmers share price went from strength to strength in 2020. Its strong earnings meant that the company could continue to pay a dividend, in a year where many companies had to slash or defer payments.
While Wesfarmers could not provide an outlook for FY21, it did note that the performance of Bunnings is expected to moderate following the extraordinary growth in the second half of 2020.
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Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers Limited. 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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