Wesfarmers (ASX:WES) share price slides as FY21 results flag weak near-term outlook

A solid FY21 performance was not enough to mask predictions of a slip in near-term earnings.

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The Wesfarmers Ltd (ASX: WES) share price has spent all day in the red today after the company released its FY21 results.

As the close of trade draws near on Friday, the Wesfarmers share price is down 2.74% to $62.21.

How did Wesfarmers perform in FY21?

Wesfarmers delivered a solid FY21 performance with strong contributions from its retail operations. Key financial highlights include:

  • Revenue up 10% to $33,941 million.
  • Net profit after tax increased 16.2% to $2,421 million.
  • Full year ordinary dividend up 17.1% to 178 cents per share
  • Proposed $2.3 billion or $2.00 per share capital return to shareholders.

Bunnings, Kmart Group and Officeworks all delivered solid earnings growth, with earnings before tax (EBT) rising a respective 19.7%, 69% and 7.6%. The three businesses make up the bulk of Wesfarmers’ earnings, contributing approximately 87% of EBT.

What might be dragging the Wesfarmers share price lower?

Wesfarmers flagged that sales in its retail divisions have been affected by recent COVID-related lockdowns that have required store closures and restricted trading across multiple regions. The company said that sales growth so far in the 2022 financial year-to-date had varied considerably across regions, with solid customer demand and performance in areas less affected by lockdowns.

Bunnings sales for the first 7 weeks of FY22 has declined 4.7% on the prior corresponding period (pcp) as solid growth from commercial customers was offset by a decline in consumer sales.

Combined Kmart and Target sales for the first 8 weeks of FY22 declined 14.3% on pcp. Wesfarmers said the drop reflected the “significant impact” of COVID-19 restrictions with almost 50 per cent of stores closed by mid-August.

Officeworks’ sales have also moderated, with a 1.5% decline for the first 7 weeks of FY22.

Looking ahead, Wesfarmers warned:

Given the impact of lockdowns in recent months and the prospect of continued trading restrictions, earnings in the Group’s retail businesses during the first half of the 2022 financial year may be below the prior corresponding period.

Ongoing disruptions to supply chains as well as global supply constraints for some products and inputs are expected to create additional costs and impact stock availability in some categories.

The prospect of weaker near-term earnings could be the catalyst behind the weaker Wesfarmers share price on Friday.

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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended 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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