Why is the Wesfarmers share price tanking 7% on Thursday?

The retail giant’s shares are taking a beating today. What’s happening?

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Key points

  • The Wesfarmers share price is tumbling by more than 7%
  • ASX retail shares are following on from declines in the US retail sector
  • Wesfarmers wants to be a price leader in Australia

The Wesfarmers Ltd (ASX: WES) share price is currently falling by 7.41% to $46.10 in afternoon trade. For comparison, the S&P/ASX 200 Index (ASX: XJO) is down by 1.47% right now.

As you can see, Wesfarmers is down a lot more than the broader ASX share market. However, it’s not the only ASX retail share suffering today. JB Hi-Fi Limited (ASX: JBH) is down 6.3%, Harvey Norman Holdings Limited (ASX: HVN) shares are sinking by 5.2%, and the Super Retail Group Ltd (ASX: SUL) share price is slumping by 5.9%.

So what’s happening to Wesfarmers shares today?

Retail share market volatility

There was significant volatility in the US retail sector last night. The S&P 500 Index (SP: .INX) fell by 4% overnight.

But there were much harder declines in the retail space. The Amazon.com Inc (NASDAQ: AMZN) share price declined by 7% while the Target Corporation (NYSE: TGT) share price dropped 25%, losing a quarter of its value in just one session.

What happened to Target to see many billions wiped off its valuation? It reported its quarterly numbers for the period to 30 April 2022. Should one quarter lead to that much of a change in its long-term value? That’s a question for the investors involved in buying and selling Target shares to answer.

Looking at what Target actually said, it pointed to the issues of higher fuel costs, elevated supply chain costs, and higher wages. However, there was more to it than just that.

Target said customers hadn’t been spending as much on discretionary products, which meant that Target had to discount more to shift the items. Overall, the company suffered an adjusted earnings per share (EPS) drop of just over 40%.

Why is this impacting the Wesfarmers share price?

Wesfarmers does operate the Target brand in Australia. However, they are different businesses.

But, Wesfarmers does operate a number of retail businesses – Target, Kmart, Officeworks, Bunnings, and Catch are the retailers in its Wesfarmers stable. It also owns Australian Pharmaceutical Industries.

The company reported in its FY22 half-year result that, excluding significant items, revenue fell 0.1% and net profit after tax (NPAT) dropped by 14.2% to $1.2 billion. In that result, the company blamed store closures, as well as stock availability, ongoing supply chain disruptions, and elevated team member absenteeism.

However, it was the company’s comments on current inflation that may have the most relevance to the bigger picture for Wesfarmers. It said:

The group continues to actively manage increasing inflationary pressure and will leverage its scale to mitigate the impact of rising costs. The group’s retail businesses will increase their focus on price leadership and are well positioned to continue to provide customers with great value on everyday products as rising cost-of-living pressures impact household budgets.

It also noted that the retail businesses are incurring additional costs and experiencing stock availability impacts as a result of the global supply chain disruptions, delays with third-party logistics providers, and elevated team member absenteeism.

Wesfarmers is expecting the supply chain disruptions, elevated transport costs, and constraints in domestic labour markets to continue in the second half.

Wesfarmers share price snapshot

Since the beginning of 2022, the Wesfarmers share price has dropped by more than 20%. It is also down by 13% over the past 12 months and 6% over the past week.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon. The Motley Fool Australia has positions in and has recommended Wesfarmers Limited. The Motley Fool Australia has recommended Amazon. 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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