The Wesfarmers Ltd (ASX: WES) share price has dropped approximately 14% since 28 August 2024.
When great businesses like Wesfarmers fall in price, I get more excited about investing.
Arguably, Wesfarmers' valuation may have gotten a little ahead of itself in August. However, at this lower valuation, I think the company is looking more reasonable following its annual general meeting (AGM) update, which revealed more growth.
Wesfarmers told the market how its key businesses (such as Kmart, Bunnings and Officeworks) have performed in the 2025 financial year to date.
Let's reflect on the company's recent performance before I get to my views on the business.
AGM sales recap
Wesfarmers said its everyday low price position is "resonating with customers who are seeking better value, and supports growth in customer numbers and transactions."
For at least the last year, Wesfarmers has been highlighting to investors its value credentials during a challenging economic period for households.
In FY25, Bunnings' sales growth has remained "resilient with positive sales growth in both consumer and commercial segments, albeit the weakness in residential construction is weighing on commercial sales." Wesfarmers said Bunnings' consumer segment sales have been "pleasing".
Kmart Group is seeing "ongoing growth in units sold, transaction volumes and customer numbers".
Bunnings and Kmart are the largest profit generators for the company, so they're integral for Wesfarmers shares.
Officeworks continues to grow, supported by stronger technology sales, which now represent approximately 60% of its sales. However, challenging business conditions have impacted small and medium business customers.
In the health division, Wesfarmers said its transformation program is "gaining pace with pleasing sales growth" in Priceline after "recent improvements to pricing on key value lines" and an expansion of the health and beauty product offer.
E-commerce growth in the retail and health divisions has been strong, and the company is benefiting from investments in its omnichannel capabilities. This is partly thanks to the growth and engagement of OnePass members, which is helping sales growth.
The last segment I'll note is WesCEF, which includes the chemicals, energy, and fertiliser operations. Wesfarmers said its strong plant operating performance "has continued" despite low lithium prices, which will hurt the division's earnings.
My views on the Wesfarmers share price
The last few years have shown how the company can perform strongly in both good and tough times.
Bunnings, Kmart and Officeworks are excellent retailers that I expect can continue performing regardless of how economic conditions evolve. With population growth, product expansion and market share gains helping drive the company's revenue, there's plenty of further scaling potential for its existing businesses.
I also like the company's strategy of looking for new long-term growth industries, such as healthcare and lithium mining, even if they are not making useful profit contributions for Wesfarmers shares at this stage. In the future, the business may enter other compelling sectors.
It doesn't seem cheap, with the Wesfarmers share price trading at 29 times FY25's estimated earnings and 24 times FY26's estimated earnings, according to Commsec. Nonetheless, I expect profits can continue rising in the coming years, which is the key reason why I'd call it a buy at this level.
