Wesfarmers Limited (WES)
SELL

Cost watch

 26 Aug 2022
Sector: Consumer Discretionary

FY22 RESULT

Need to know:

  • Final dividend 100cps fully franked, payment date 6 October
  • Sales growth good for rest of CY22, but rising costs could hit margins in CY23.
  • Bonza year for WesCEF, more to come

Investment Implications

Higher costs are the red flag for margins and earnings into FY23f.

WesCEF: Standout result with revenue +41.7% and EBIT up 40.6% to $541m in FY22. Higher prices for LPG, fertiliser and ammonia-related products contributed. The Mt Holland lithium project is under construction.

Bunnings: Revenue +5.2%, EBIT +0.7% boosted by net property transactions. Store-on-store sales growth +4.8%, 2H22 total store sales +7.8%. EBITDA margin 106bp down as cash costs +11%. $71m COVID costs.

Kmart Group: Revenue -3.5% good performance considering ¼ of store trading days lost to lockdowns. Target closed 10 stores in the year, rebranded 2. Kmart holding higher inventory in non-seasonal categories to avoid supply chain shortages.

Officeworks: Online penetration hit 40%. Weak back-to-school period  hit by COVID-19, but tech and furniture sales still going well (WFH?).

COVID-19: Disrupted almost 10% of WES’s retail store trading days during the year. Health and safety costs added $65m to group costs. WES spent an extra $49m covering paid pandemic leave to staff.

Inventory: API and Beaumont Tiles added. Normalisation of Bunnings stock levels following very high sales growth since FY19.

Outlook: First 7 weeks retail trading strong at Kmart Group (incl Target) as consumers seek value. WesCEF still benefitting from strong commodity prices.

FIGURE 1: FY22 RESULT

This commentary reflects our initial view. For detailed reports for companies under Sandstone Insights coverage, see our latest research notes for our investment view and specific risks associated with investing in these companies.

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Stock overview

Share Price

Company overview

Wesfarmers has a portfolio of businesses spread across retail (Bunnings, Kmart Group, Officeworks), resources (WES Chemicals, Energy and Fertiliser), Industrial & Safety plus a range of other investments.

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