Wesfarmers CEO has told shareholders the businesses remain resilient

Bunnings, Kmart and Target are ‘resilient’ in the face of a difficult economy, Wesfarmers chief Rob Scott says while its chairman defends the idea that profit is a ‘dirty word’ to shareholders at its AGM.

Bunnings is proving to be resilient in the current economic climate, says Wesfarmers boss Rob Scott.

Wesfarmers chief executive Rob Scott says elevated inflation and interest rates continue to place pressure on household and business demand, but the conglomerate’s key businesses, such as Bunnings and Kmart, remain resilient as shoppers seek out value.

In the Wesfarmers boss’s speech to be delivered to the annual general meeting in Perth later on Thursday, Mr Scott provided a trading update for its portfolio of retail, industrial and mining businesses.

In his address Wesfarmers chairman Michael Chaney also derided those who seem to think that profit is a “dirty word”, strongly defending the role of profitable companies such as Wesfarmers and its contribution to the Australian economy and community.

The conglomerate also announced the departure of director Jennifer Westacott who will retire from the board.

She will be replaced by businesswoman and director Julie Coates who was most recently the CEO of CSR and previously the boss of Goodman Fielder and Big W.

Mr Scott will tell shareholders that in the current economic settings, the bulk of its businesses were performing well. Although some parts of the conglomerate were finding the economic settings more challenging such as Officeworks which was encountering weaker conditions among small and medium sized business customers and its online marketplace Catch Group which was continuing to struggle.

Kmart and Target were performing strongly, however basket sizes were retreating slightly as shoppers looked to save money and stretch their household budgets.

The Wesfarmers boss highlighted the “low price position” of its retail businesses and that this was a source of strength.

“In this environment, the everyday low price position of our retail businesses is resonating with customers who are seeking better value, and supports growth in customer numbers and transactions,” he said in his AGM speech issued to the ASX.

Mr Scott said for Bunnings, which drives the bulk of Wesfarmers’s earnings, year-to-date sales growth remained resilient with positive sales growth in both consumer and commercial segments, albeit the weakness in residential construction is weighing on commercial sales. “Growth in the consumer segment has been pleasing, and Bunnings has seen a continued increase in transactions driven by ongoing demand for repairs and maintenance. Bulk pack quantities, own-brand and entry level ranges continue to perform well.”

He said Kmart Group, which includes Target, was benefiting from the strong value credentials and uniqueness of its Anko private label products.

Wesfarmers chairman Michael Chaney AO (L) and CEO Rob Scott. Picture: Colin Murty

“The strength of the Kmart Group offer is evident through ongoing growth in units sold, transaction volumes and customer numbers. However, customers are increasingly seeking value and items per basket and average sell price have both experienced minor decreases.”

Officeworks’ sales growth continues to be supported by higher technology sales, now representing approximately 59 per cent of its sales, but demand from business customers, particularly small and medium sized businesses, has been impacted by challenging business conditions, he said.

In the health division, which includes Priceline pharmacies, the transformation program was gaining pace with pleasing sales growth in Priceline following recent improvements to pricing on key value lines and an expansion of the health and beauty product offer.

He said its loss-making online marketplace Catch Group had suffered a hit to its transaction value due to weaker discretionary demand and increasing competition.

In WesCEF, its chemicals and mining arm, strong plant operating performance has continued. Losses associated with depressed global lithium prices on spodumene sales, pursued before the product is used by the hydroxide plant, will impact earnings.

In the Industrial and Safety division, trading conditions in Blackwoods and Workwear Group have become more challenging, with customer demand impacted by a softer market environment, Mr Scott said.

The businesses are focused on delivering cost reduction and efficiency initiatives to offset slower sales growth. Coregas continues to perform well and win market share.

“While the outlook for the economy remains uncertain with ongoing challenges, Wesfarmers is well positioned with resilient businesses, a strong balance sheet and various platforms for future growth.”

In his chairman’s address, Mr Chaney defended the conglomerate’s profitability and the important contribution profitable companies make to the Australian economy.

“Now for some external parties, profit seems to be a dirty word, but it is important to understand how profitable businesses are essential to our economy and future prosperity,” he said.

“For one thing, companies have to be profitable in order to continue to operate – to do everything I just listed, like employing people, sourcing products and services from suppliers, providing customers what they need and supporting their communities.”