Wesfarmers share price on watch amid stellar first-half Kmart growth

The Kmart business has been on fire so far in FY 2024.

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The Wesfarmers Ltd (ASX: WES) share price will be in focus on Thursday after the conglomerate released its half-year results.

Let's see how the company performed during the half.

Wesfarmers share price on watch after half-year results release

  • Revenue up 0.5% to $22,673 million
  • Earnings before interest and tax (EBIT) up 1.6% to $2,195 million
  • Net profit after tax up 3% to $1,425 million
  • Operating cash flows up 47% to $2,898 million
  • Fully franked interim dividend up 3.4% to 91 cents

What happened during the half?

For the six months ended 31 December, Wesfarmers reported a 0.5% increase in revenue to $22,673 million.

This was driven by a 1.7% increase in Bunnings revenue, a 7.8% jump in Kmart revenue, a 1.8% lift in Officeworks revenue, and a 3.2% improvement in Industrial and Safety revenue. This offset weaker Catch, Target, Wesfarmers Health, and WesCEF revenue. The latter was down 21.2% on the prior corresponding period.

Wesfarmers' earnings grew at a quicker rate during the half, with net profit after tax up 3% to $1,425 million.

This was driven largely by the Kmart Group business, which posted a 26.5% increase in earnings for the six months. Management advised that its record result reflects the positive customer response to Kmart's lowest price positioning.

Bunnings earnings were relatively flat for the period but up 3.1% excluding property contributions.

The main drag on its earnings was the WesCEF business, which posted a 46.9% decline in earnings for the period. Its earnings were impacted by lower global commodity prices, as well as higher Western Australian gas costs.

Finally, thanks partly to its strong cash flow generation, the Wesfarmers board elected to increase its interim dividend by 3.4% to 91 cents per share.

How does this compare to expectations?

This result appears to have been a bit of a mixed bag compared to the market's expectations.

On the positive side, Morgans was forecasting "EBIT to be down 5% mainly due to materially lower WesCEF earnings."

So, the company has beaten those expectations, which could be good news for the Wesfarmers share price.

One negative, though, is the performance of the Bunnings business compared to expectations.

Goldman Sachs was forecasting a solid 5.1% increase in Bunnings EBIT for the half. Given that it is the key business in the Wesfarmers portfolio, its underperformance could be a worry for some investors.

Management commentary

Wesfarmers's Managing Director, Rob Scott, was pleased with the company's performance. He said:

Wesfarmers' retail divisions executed strongly during the half, responding effectively to changing customer needs as households increasingly sought out value. In this environment, the retail divisions' core offer of everyday products with market-leading value credentials supported growth in sales and customer transaction numbers.

The retail divisions have benefitted from a proactive focus on productivity and efficiency initiatives in recent years, which together with their unique sourcing capabilities and strong supplier partnerships enabled them to mitigate ongoing cost pressures and provide compelling value for customers during the half.

Outlook

No guidance has been provided for FY 2024, but management has given investors an update on the first five weeks of the second half. It said:

For the first five weeks of the second half of the 2024 financial year, Kmart Group has continued to deliver strong sales growth. Sales growth in Bunnings remained broadly in line with results for the first half. Officeworks' sales for the first five weeks were in line with the prior corresponding period.

The Wesfarmers share price is up almost 20% over the last 12 months.

Motley Fool contributor James Mickleboro 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 Goldman Sachs Group and Wesfarmers. The Motley Fool Australia has positions in and has recommended Wesfarmers. 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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