Wesfarmers increases dividend as it sees the Australian economy in a position of strength
The Bunnings and Kmart owner booked a drop in profit but chief Rob Scott reckons buffers are in place to deal with inflationary pressures.
Business
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Wesfarmers chief executive Rob Scott is turning to Bunnings and discount chains Kmart and Target to win over cost-conscious shoppers at a time when inflation is squeezing household budgets.
The boss of the Perth-based conglomerate said while the economy was heading into a period of elevated inflation from a position of strength – with low unemployment and elevated household savings rates – shoppers had switched habits adopted through lockdowns to now be looking to value.
In this environment it would be his juggernaut hardware chain, with its lowest price points and his other retail businesses such as Kmart, Officeworks and Target that would step up and offer the value that consumers were hunting for, delivering earnings growth into fiscal 2023.
“Through (Covid-19 lockdowns) we noticed that customers were not as value conscious as they ordinarily would be what we have seen in recent months, I think, to a large degree, a normalisation of customers focus focusing back on value which is obviously very important,” Mr Scott said in Friday after Wesfarmers posted an 8.5 per cent rise in revenue to $36.838bn for the 12 months to June 30, as net profit fell 2.9 per cent to $2.352bn.
The Wesfarmers results the financial year sported the bruises of a difficult first six months marked by store closures, pandemic lockdowns and other limitations that kept some of its tills silent.
Dragging down the Wesfarmers profit was overall flat earnings from Bunnings, an earnings slump at Kmart, an almost doubling of losses at its online marketplace Catch and a near-15 per cent earnings slide at Officeworks.
The chemicals, energy and fertilisers arm of Wesfarmers, WesCEF – normally a quiet achiever in the group and often overlooked – had a stellar result in 2022 with revenue up 41.7 per cent to $3.04bn and earnings up 40.6 per cent to $540m for the year.
But a rebound in earnings at Bunnings in the first half as well as growth from Kmart heading into July and August had given Mr Scott the growing confidence the conglomerate’s key pillars across retail were starting to find their feet in the post-pandemic world.
Mr Scott said Wesfarmers was committed to keeping its prices down in this environment, which he believed consumers would reward. “We will only flow our costs through to the extent that we can maintain our lowest price position in core businesses like everyday low price businesses like Bunnings, Officeworks and Kmart in particular,” he said.
“Now we have been able to flow our cost increases through and minimise the amount of impact on prices and still retain our lowest price credentials.
“Certainly the philosophy of our retail businesses is not to use inflation as an opportunity to try and capture greater margins from customers. Our opportunity in this environment is to see if we can extend our price leadership and encourage more customers to come and shop with brands that they trust for value.”
“The retail businesses will maintain their focus on meeting the changing needs of customers and delivering even greater value, quality and convenience,” Mr Scott said on Friday.
Mr Scott said as a result of the vastly improved second-half result, Wesfarmers has upped its final dividend, paying $1 per share, up from 90c paid last year, and payable on October 6.
The 2022 trading year was marked by store closures and Covid-19 restrictions, mostly in the first half, and across the group’s retail businesses there were around 34,000 store trading days impacted by trading restrictions in the first half, representing almost 10 per cent of total store trading days for the year.
In terms of its key business pillars, Bunnings saw a 5.2 per cent increase in revenue to $17.754bn as earnings lifted slightly by 0.9 per cent to $2.2bn.
The outlook for the hardware retailer was consumer and commercial demand supported by a solid pipeline of renovation and building activity, as well as incremental DIY growth opportunities as customers continue to focus on maintaining and improving their homes.
At the Kmart business, which includes Kmart, Target and Catch, revenue fell 3.5 per cent to $9.635bn as earnings fell 34.1 per cent to $418m. Kmart’s total sales increased 0.5 per cent for the year, with comparable sales decreasing 1 per cent.
Target’s total sales decreased 15.8 per cent for the year, largely reflecting the closure or conversion of 69 Target stores and 87 Target Country stores across the 2021 and 2022 financial years.
Comparable sales for Target increased 8.6 per cent for the year and 11.6 per cent in the second half, driven by continued improvements in the product offer and higher levels of promotional activity.
Losses at Catch worsened, rising to $88m from $46m in 2021.
Officeworks’ revenue increased 4.6 per cent for the year to $3.169bn. Earnings of $181m were 14.6 per cent lower than the prior year.
Its new health pillar, formed following the $764m takeover of Australian Pharmaceutical Industries, saw revenue of $1.24bn and a small loss of $25m.
Originally published as Wesfarmers increases dividend as it sees the Australian economy in a position of strength
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