Reporting Summary

Wesfarmers Limited (WES)

1H Year Results - Released 15/02/2017

  • Beat consensus estimates for NPAT and DPS but missed slightly on revenue

Financial Results

  • NPAT reported as $1.58b compared to consensus estimates of $1.49b and was up 13.2% from a year ago
  • Operating revenue reported as $34.92b which was lower than consensus estimates of $35.11b
  • Reported EBIT of $2.43b which was better than consensus estimates of $2.26b and was up 15.1% from a year ago
  • Interim dividend of $1.03 ps fully franked, payable on 28 March

Operational Key Points

EBIT Divisional Earnings:

  • Coles $920m compared to $945m a year ago
  • Home Improvement (Bunnings) $722m compared to $701m a year ago
  • Department Stores:
    • Kmart $371m compared to $319 a year ago
    • Target $16m compared to $74m a year ago
  • Officeworks $62m compared to $52m a year ago
  • Industrials $377m compared to $22m a year ago

Operational Summaries:

  • Food & Liquor:
    • Focussing on the customer in a competitive market
    • Continued positive momentum positions the business for sustainable long term growth
    • Coles Online continues to achieve strong growth
  • Home Improvement - Bunnings:
    • Revenue uplift of 8.3%
    • Broad strength of trading performance across all major regions: consumer and commercial
  • Department Stores:
    • Kmart:
      • Strong sales performance, up 9.1% on the last year
      • EBIT growth of 16.3% with a strong contribution from everyday ranges sold at full price. Improved clearance and inventory. Continued benefits from sourcing & supply chain efficiency
    • Target:
      • Total sales decline of 17.4% on the back of a difficult trading period which reflects a significant business transition.
      • Earnings include $13m for restructuring costs following binding commitments for relocation of Target’s store support office
  • Officeworks:
    • Revenue growth of 5.9%
    • Intense focus on customer offer with new merchandise layouts and store designs
    • Effective cost control & disciplined inventory management
  • Industrials:
    • Chemicals, Energy & Fertilisers:
      • Revenue declined 7.7%
      • Strong growth in underlying earnings
    • Resources:
      • 24.1% increase in revenue on the back of significant increase in metallurgical & thermal coal prices during 2Q17
      • Wet weather disruptions during 1Q17 led to higher mine cash costs for the half
      • Benefit from lower depreciation and amortisation

Management Outlook

  • Retail: Generally optimistic outlook
    • Strong momentum & market leading positions provide for a positive outlook for BANZ, Kmart & Officeworks
    • Coles to continue to deliver strong customer proposition to support long-term growth in earnings & returns despite short-term margin pressures
    • BUKI to focus on implementing pilot stores & continuing to reposition the business to drive a stronger operating performance
    • Target’s 2H17 earnings expected to improve as merchandising improves & restructuring costs incurred in the prior year are not repeated
  • Industrials:
    • Resources FY result is expected to benefit from the material increases in coal prices with continued volatility expected for the remainder of the year.
    • Industrial & Safety merchandising & pricing strategies & cost savings are expected to mitigate impact of subdued market conditions
  • Group:
    • Progressing strategic reviews of Resources & Officeworks
    • Maintain a strong balance sheet & cash flow generation
    • Secure growth opportunities through entrepreneurial initiatives
    • Ensure sustainability through responsible long-term management

Michael Ron

Research Analyst

Michael has been trading equities since 2003 and since joining DJ Carmichael in 2004 has worked in numerous roles in operations, trading, compliance and research. Michael’s expertise is in trading and equity strategy using a combination of both technical and fundamental analysis.

Michael holds a Graduate Diploma in Applied Finance, Diploma of Financial Markets, Diploma of Financial Planning, Advanced Diploma of Business Administration and is currently studying towards a Master of Applied Finance.