The Wesfarmers Ltd (ASX: WES) share price substantially outperformed the S&P/ASX 200 Index (ASX: XJO) in 2023. The ASX 200 went up by around 9%, while the Wesfarmers share price went up just over 25%.
It's been a surprisingly strong year for a retailer considering the RBA interest rate in Australia has finished the year at 4.35%, the highest it has been since 2011. Households are facing a lot of economic pain, yet Wesfarmers continues to do well for shareholders.
How has it managed to keep performing?
The FY23 result, announced in August, saw the company report revenue growth (excluding Wesfarmers Health) of 7.4% to $38.2 billion, while the earnings per share (EPS) grew 4.8% to $2.178 and the full-year dividend increased 6.1% to $1.91 per share.
Most importantly, the two biggest divisions achieved growth in FY23. Bunnings and Kmart Group revenue rose 4.4% and 16.5% respectively, while earnings grew 1.2% and 52.3% respectively.
Wesfarmers noted that retail customers "increasingly sought out value and traded down to lower-priced items with product ranges."
So, while plenty of households may be suffering, businesses like Bunnings and Kmart pride themselves on offering the best value, and an increase in market share can offset some individual pain for customers.
Other segments like Officeworks, industrial and safety also managed to achieve decent revenue and earnings growth in FY23.
In the first few months of FY24, Bunnings has continued to achieve a little bit of sales growth, Kmart Group achieved "strong financial results", Officeworks sales were flat and Catch operating losses had "continued to improve". However, earnings are challenged for the industrial side of the business.
Priceline sales have been growing, but wholesale and Clear Skincare revenue has "moderated". Health division earnings have been impacted by "accelerated investment in transformation activities, PBS changes, and integration costs associated with acquisitions."
Can the Wesfarmers share price keep rising?
No one knows what a share price is going to do, particularly in the short term.
But, over time, if a company can keep increasing its profit then there's a good chance the share price can keep rising.
On Commsec, the current projection is that Wesfarmers' EPS could fall slightly in FY24 and then rise in FY25. Between FY23 to FY25, the EPS is projected to rise by 10%, which is a decent rate of growth.
The company can continue making acquisitions to boost its scale and growth avenues. For example, it's making bolt-on acquisitions in the healthcare space.
Wesfarmers had a good year in 2023, it'll be interesting to see what happens in 2024.
