The Wesfarmers Ltd (ASX: WES) share price is in focus after the business that owns Bunnings and Kmart reported its FY23 result.
This report is for the 12 months to June 2023.
Wesfarmers share price
- Revenue rose 18.2% to $43.5 billion
- Earnings before interest and tax (EBIT) increased 6.3% to $3.86 billion
- Net profit after tax (NPAT) went up 4.8% to $2.47 billion
- Operating cash flow soared 81.6% to $4.18 billion
- Earnings per share (EPS) grew by 4.8% to $2.18
- Full-year dividend increased by 6.1%
Excluding the healthcare division within Wesfarmers, which has been making acquisitions, revenue rose by 7.4% to $38 billion. API was acquired on 31 March 2022, and this was the first full year of ownership.
Looking at the full-year revenue performance of some divisions, Bunnings saw a 4.4% rise to $18.5 billion, Kmart Group experienced a 16.5% rise to $10.6 billion, WesCEF (chemicals energy and fertilisers) saw an 8.7% increase to $3.3 billion, Catch suffered a 30.6% fall to $354 million and Officeworks achieved a 5.9% rise to $3.36 billion. The healthcare division contributed $5.3 billion in revenue.
Wesfarmers reported that "earnings" growth was dramatically different between the segments over the 12 months. Bunnings earnings only increased 1.2% to $2.23 billion, Kmart Group saw a 52.3% increase to $769 million, WesCEF grew earnings by 23.9% to $669 million, the Catch loss worsened by $75 million to a loss of $163 million and Officeworks earnings went up 10.5% to $200 million.
In the six months to June 2023, total divisional revenue rose 10.1% to $21 billion and divisional earnings increased 5.6% to $1.7 billion.
The operating cash flow was assisted by strong divisional earnings and the normalisation of working capital across its retail and industrial businesses, after temporarily high balances at the end of FY23.
Wesfarmers called its performance strong and resilient during this uncertain period. It said the businesses benefited from its customer value credentials.
The final dividend declared was $1.03 per share, an increase of 3%.
What else happened in FY23?
The business continued to invest in and expand its OnePass membership program, with Bunnings joining. It also launched a multi-year partnership and stream bundle with Disney+. Wesfarmers believe OnePass users are increasingly connected across its brands and are more valuable customers than non-OnePass members.
It also noted that it has been progressively selling its interest in Coles Group Ltd (ASX: COL) shares, and sold its remaining 2.8% interest in April 2023.
In the healthcare division, it increased its ownership of SiSU health station business to 60%, and it's progressing proposals of InstantScripts and Silk Laser Australia Ltd (ASX: SLA). The Wesfarmers share price rose 0.5% when the company entered into a binding implementation deed with Silk Laser.
Project development and construction activities have continued for the Mt Holland (Covalent) lithium project. Construction of the mine and concentrator was completed, and commissioning of the concentrator is "underway". Refinery civil works are complete and a majority of purchased equipment has arrived in Western Australia.
What did Wesfarmers management say?
The Wesfarmers managing director Rob Scott said:
Wesfarmers' financial results were underpinned by strong divisional earnings growth of 12.9% for the year, as the group's operating businesses continued to respond well to trading and market conditions.
Wesfarmers maintained its focus on long-term shareholder returns and continued to advance key growth projects during the year, while also taking proactive steps to drive productivity and efficiency across its businesses.
What's next for Wesfarmers?
The business said it will continue to invest in data and digital, including the development of the OnePass membership program. Officeworks is expected to join as a partner in the FY24 first half.
It will (continue to) trial the use of generative AI across the business, with the aim of improving customer service as well as improving efficiencies.
The lithium business is expected to commence production and sale of spodumene concentrate during FY24.
Wesfarmers noted that "many" customers are becoming more value-conscious and trading down to lower-priced retailers and products, though low unemployment and Australian population growth both support demand. The company believes its retailers are well-positioned to meet customer demand and grow market share.
In the first seven weeks of FY24, sales growth has continued (but slowed) in Kmart Group. Bunnings has managed to deliver sales growth "in line" with the second half of FY23 (which was a 2.4% rise). Officeworks sales in the first seven weeks of FY24 were in line with FY23.
Earnings from WesCEF's existing operating businesses are expected to "decline significantly" in FY24, largely due to lower ammonia prices and higher input gas costs. Lithium earnings are expected to start contributing in the FY24 second half.
Cost pressures in ANZ are expected to remain elevated due to inflation, labour market constraints, wage cost increases and domestic supply chain costs. However, its large businesses can benefit from "proactive productivity" and efficiencies, so it believes it can adjust costs to be in line with trading conditions.
Wesfarmers share price snapshot
Before the release of this result, the Wesfarmers share price had risen 8.7% in 2023, while the S&P/ASX 200 Index (ASX: XJO) had gone up 3.4%.
