Wesfarmers (ASX:WES) share price on watch after 'most disrupted period' since COVID onset

Here's what might drive the Wesfarmers share price on Thursday.

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Key points

  • The Wesfarmers share price is in focus this morning after the company released its first half earnings
  • The company saw its revenue fall 0.1%, its EBIT drop 12%, and its profits fall 14%
  • Wesfarmers' managing director Rob Scott described the period as the most disrupted half since the onset of the pandemic

The Wesfarmers Ltd (ASX: WES) share price is on watch this morning after the release of the company's results for the first half of financial year 2022.

As of Wednesday's close, the Wesfarmers share price is $54.92.

Wesfarmers share price in focus on challenging first half

  • Revenue came to around $17.75 billion – a 0.1% drop on that of the first half of financial year 2021
  • Earnings before interest and tax (EBIT) reached $1.9 billion, representing a 12.3% fall
  • Net profit after tax (NPAT) reached $1.2 billion – down 14.2%
  • Basic earnings per share (EPS) came to 107.3, also representing a 14.2% drop.
  • Operating cash flows fell 29.8% to $1.5 billion
  • The company announced an 80 cent, fully franked interim dividend – 9.1% lower than that of financial year 2021

The first half of financial year 2022 was the "most disrupted period for our businesses since the onset of COVID-19", said Wesfarmers' managing director Rob Scott.

The company's retail businesses saw around 34,000 store trading days – representing 20% – being impacted by closures or restrictions during COVID-19 outbreaks.

Wesfarmers was also impacted by supply chain issues and staff absenteeism due to the virus' spread.

Over the half year, Wesfarmers' Bunnings business saw its revenue increase 1.7% to $9.2 billion. Its earnings however, fell 1.2% to around $1.2 billion.

It wasn't such a good half for Kmart. The business' revenue dropped 9.6% to $4.9 billion. Kmart and Target combined saw earnings fall 55.8% to $222 million for the half year.

Catch saw its gross transaction value increase 1% for the half and 97.5% on a two-year basis. Its lower earnings were born from investment into its long-term growth.

Meanwhile, Officeworks saw revenue grow 3.7% to around $1.5 billion and earnings drop 18% to $82 million.

WesCEF's fertilisers revenue grew 29.8% to $1 billion while its earnings increased 36.3% to $218 million, supported by higher commodity prices.

Wesfarmers' industrial and safety business' revenue increased 5.1% to $944 million, and its earnings grew 10.8% to $41 million.

Wesfarmers had net debt of $2.6 billion at the end of the half.

What else happened during the half?

The biggest news from Wesfarmers last half was its proposed acquisition of Australian Pharmaceutical Industries Ltd (ASX: API).

The company placed a bid for API in July. It has offered to pay $1.55 per API share and, as of early January, is the only entity vying for the company.

Over the half year, Bunnings was hit with extra costs to ensure safety and manage COVID-19-related supply challenges.

It also completed its acquisition of Beaumont Tiles during the half and expanded Tool Kit Depot into Western Australia.

Officeworks, meanwhile, was hampered by COVID-19 restrictions, costs from more 'click and collect' style online orders, and its move to a new customer fulfilment centre.

In the non-retail side of the company's businesses, construction activity ramped up at the Mt Holland Lithium Project.

Finally, Wesfarmers also saw its scope 1 and 2 carbon emissions fall 14.3% under the Market-Based Emissions Standard during the half.

What did management say?

Scott commented on the company's first half results saying:

The first half of the 2022 financial year was the most disrupted period for our businesses since the onset of COVID-19, with extended government-mandated store closures and trading restrictions in Australia and New Zealand.

The group recognises the alignment between long-term shareholder value and progress on key sustainability metrics, and good progress was made on diversity and inclusion, emissions reduction, and operational waste during the half.

Wesfarmers continued to manage its balance sheet to maintain a high degree of flexibility during the half, and took opportunities to optimise the group's debt maturity profile and cost of borrowing, including through the issue of a EUR600 million sustainability-linked bond with targets aligned to the Group's decarbonisation strategies.

What's next?

Wesfarmers hasn't given any guidance for the rest of financial year 2022.

However, it has noted ongoing COVID-19 impacts and uncertainty.

Additionally, supply chain issues will continue to hamper many of its businesses with higher expenses expected.

The company is also keeping an eye on inflation, labour availability, and commodity prices.

Wesfarmers recently rebranded the Club Catch subscription program to OnePass. The program's expansion will continue into the rest of the financial year.

Wesfarmers share price snapshot

The Wesfarmers share price has fallen 8.5% since the start of 2022.

Though, it is 1.4% higher than it was this time last year.

Motley Fool contributor Brooke Cooper 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 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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