Wesfarmers Ltd (ASX: WES) shares are facing a number of positives and negatives in the current environment.
As we can see on the chart below, the Wesfarmers share price has gone through plenty of ups and downs over the past year. But it's currently close to its 52-week high.
Some readers may not know that Wesfarmers is the company that owns Bunnings, Kmart, Officeworks, Target, Catch, Priceline, InstantScripts and Clear Skincare Clinics.
With retail making up the bulk of its profit generation, it'd be good to start there.
Retail
Many households are facing a difficult economic situation amid the recent interest rate rises and high inflation.
While Wesfarmers' customers may have less available money to spend right now, retailers like Bunnings and Kmart can thrive because they pride themselves on offering customers the lowest prices.
I think Bunnings and Kmart can continue to grow their market share, and thereby support earnings during this difficult period. In my view, these are two of the best retail businesses in the country. They could make the biggest difference to Wesfarmers shares in the next year or two.
In its latest trading update at the annual general meeting, Wesfarmers advised costs were rising, including higher wage costs and energy prices.
Bunnings sales growth was in line with the second half of FY23, and there was growth in both the consumer and commercial segments.
While some customers are avoiding big-ticket purchases, demand for "products that support necessary repair and maintenance and smaller scale projections remains robust", and Bunnings has seen "increased foot traffic to stores through the year to date".
Wesfarmers added that "strong financial results have continued in Kmart Group" as it benefited from its value offerings.
Officeworks sales for FY24 to date are "broadly in line" with last year, though costs have increased. Catch's operating losses have "continued to improve" over the year to date.
Lithium and WesCEF
Wesfarmers is part of a joint venture which is working on a lithium project called Mt Holland. Once completed, it should help with earnings for the Wesfarmers chemicals, energy and fertiliser (WesCEF) division.
However, the lithium price has shrunk significantly in the last several months, so the lithium JV may not earn as much as previously expected.
The other parts of the WesCEF division may see earnings fall "significantly" with a lower global ammonia price and higher West Australian gas costs.
Is this a good time to buy Wesfarmers shares?
I think Wesfarmers is one of the highest-quality businesses on the ASX, with excellent brands.
I'd prefer to buy a great business at near a 52-week low than a 52-week high like it is now.
But I'd be happy to buy a few shares today for the long term and hold through any shorter-term volatility. As a bonus, it usually pays a pretty good dividend to shareholders, so it's rewarding to own Wesfarmers shares year after year.
