The Wesfarmers Ltd (ASX: WES) share price was hurt in September. How much? It went down 9%. For a business as big as Wesfarmers, losing almost a tenth of its market capitalisation is a big decline.
It did even worse than the S&P/ASX 200 Index (ASX: XJO), which 'only' fell by 7.3% over the month.
So, why did Wesfarmers fall so much?
Increased market volatility
Wesfarmers is connected to the Australian economy, so it's not immune to changing investor sentiment about different parts of the market. It operates a number of businesses like Bunnings, Kmart and Officeworks.
Inflation has picked up in Australia (and around the world). This is having and could have, a number of impacts on Wesfarmers.
The ASX share may be dealing with higher costs in a number of different areas like wages, the supply chain, raw materials and so on.
Wesfarmers has said that it wants to keep providing good value for customers, so this tactic could hurt margins if it doesn't pass on the increased costs of inflation.
A tricky thing for investors is that central banks are increasing interest rates to bring down inflation.
If interest rates go up then it hurts the Wesfarmers share price and underlying value, in theory. That could explain why it has fallen 26% in 2022 and why it dropped 9% last month.
How are sales in FY23 going?
Investors often like to look at the outlook and the trading update to inform their viewpoints on a business.
Wesfarmers said that in the first seven weeks of FY23, sales growth had been "particularly strong" in Kmart Group, with sales "significantly higher" on both a one-year and two-year basis.
Bunnings is also continuing to see positive sales growth on a one-year and two-year basis. Sales in Officeworks were in line with the prior year.
WesCEF (the chemicals, energy and fertiliser business) is expected to "continue to benefit from elevated commodity prices" and "will continue to evaluate capacity expansion opportunities for its existing operations" as well as working on the Mt Holland lithium project.
But, FY23 isn't the company's only focus. It's also looking at the long-term. Wesfarmers said with its FY22 result:
The group will continue to develop and enhance its portfolio, building on its unique capabilities and platforms to take advantage of growth opportunities within existing businesses and to pursue investments that create value for shareholders over the long term.
Broker rating on the Wesfarmers share price
One of the brokers that released updated thoughts on the business in September was Ord Minnett. The broker has a lighten rating on the Wesfarmers share price, and thinks that some retailers could see pressure on their margins in the next year or two.
Ord Minnett's projections put the Wesfarmers share price at 21 times FY23's estimated earnings with a projected grossed-up dividend yield of 5.7%.
