Wesfarmers Ltd (ASX: WES) shares are down more than 6% since the release of the company's FY24 result.
The company delivered earnings growth as expected, but investors may have been hoping for more from its report and trading update for FY25.
At $84 billion in size, Wesfarmers is the biggest retailer on the ASX by market capitalisation.
Taking into account the financial numbers, let's consider if the business is still worth buying.
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Earnings recap
In the FY24 result, Wesfarmers reported revenue grew 1.5% to $44.2 billion, earnings before interest and tax (EBIT) increased 3.3% to $4 billion, net profit after tax (NPAT) increased 3.7% to $2.56 billion, earnings per share (EPS) rose 3.6% to $2.26, operating cash flows grew 9.9% to $4.6 billion and the full-year dividend per share grew 3.7% to $1.98.
Let's look at the two biggest profit-generating divisions.
Bunnings Group's performance was solid. Revenue grew 2.3% to $19 billion, while earnings grew by 0.9% to $2.25 billion.
Kmart Group revenue rose 4.4% to $11.1 billion, while the earnings jumped 24.6% to $958 million.
Wesfarmers said Bunnings "demonstrated the resilience of its offer and ability to deliver growth through a range of market conditions, with higher sales growth recorded in the second half".
Kmart had a "standout" result thanks to what Wesfarmers called "market-leading value credentials of its Anko products, unique sourcing capabilities and actions to reduce costs".
Is it time to buy Wesfarmers shares?
The company's overall earnings growth didn't exactly shoot the lights out, considering the Wesfarmers share price is up 35% in the last 12 months.
In the first eight weeks of FY25, Wesfarmers reported sales growth for Bunnings, Kmart, and Officeworks, though it reported that Bunnings' growth was slowing due to a "softening in building activity."
The company is demonstrating several positives. Management is investing for the long term, and the company's retail businesses are well-positioned to help households focused on value-based products.
Wesfarmers' larger businesses are benefiting from investments made to digitise their operations and improve their sourcing capabilities.
I'd say that Wesfarmers is one of the best retailers in Australia, and I think it will continue to be so for a long time.
The company is smartly investing in areas with long-term growth potential, such as healthcare, particularly digital healthcare.
What has always impressed me about Wesfarmers is the high return/profit the company makes on money invested in the business. In FY24, Bunnings delivered a return on capital (ROC) of 69.2%, and Kmart Group achieved ROC of 65.7%. I'd strongly encourage Wesfarmers to keep investing for growth, particularly in Kmart. If Wesfarmers can grow its Anko brand overseas, it has a very exciting future.
According to the Commsec forecast, the Wesfarmers share price is valued at 30x FY25's estimated earnings. Commsec numbers show the average annual price/earnings (P/E) ratio was 26 in FY22 and 25.3 in FY24.
The business has lifted above its typical valuation, so I wouldn't call it the best S&P/ASX 200 Index (ASX: XJO) share to buy today.
But I'd also note that it is worth owning high-quality companies for the long term, even if the price is a bit higher than an average business valuation.
