Wesfarmers Reports 4.8% Increase in Annual Net Profit

Overview

Wesfarmers, an Australian conglomerate, has announced a 4.8% rise in its annual net profit for the fiscal year ending in June. While the company’s retail businesses are expected to benefit from consumer trading down, its commodities unit is likely to face a significant drop in earnings. Despite this mixed outlook, Wesfarmers’ financial performance has been bolstered by robust divisional earnings growth.

Financial Results

In the 12 months through June, Wesfarmers achieved a net profit of AUD 2.47 billion, marking an increase from AUD 2.35 billion in the previous year. Earnings before interest and tax (EBIT) saw a growth of 6.3% to reach AUD 3.86 billion, while annual revenue surged by 18% to reach AUD 43.55 billion.

To reward its shareholders, Wesfarmers’ directors have declared a final dividend of AUD 1.03 per security, resulting in a full-year payout of AUD 1.91. This compares to a total payout of AUD 1.80 per security in the prior year.

Outlook and Remarks

Managing Director Rob Scott acknowledged the strong performance of Wesfarmers’ operating businesses in response to the prevailing trading and market conditions, contributing to the overall net profit growth. While highlighting the significant change in non-cash property revaluations recorded at the group level, Scott emphasized the consolidated divisional earnings growth as a key factor behind the company’s success.

Wesfarmers remains cautiously optimistic about the future, with its retail businesses expected to benefit from consumers trading down. However, the company anticipates a substantial decline in earnings within its commodities unit in the coming fiscal year.

Wesfarmers Forecasts Cost Pressures and Value Conscious Customers

The future outlook for Wesfarmers indicates that the company anticipates continued cost pressures in Australia and New Zealand. These pressures are attributed to inflation, labor market constraints, wage cost increases, and domestic supply chain costs.

The combination of elevated inflation and high interest rates has led to an increase in customers who are more conscious of value. As a result, many customers are choosing to trade down to lower-priced products. Fortunately, Wesfarmers’s retail brands are well-positioned to meet this shift in consumer demand.

While the Kmart Group has experienced strong trading results, sales growth has recently moderated, compared to the second half of the previous financial year. Bunnings, on the other hand, continues to sustain sales growth in line with the second half of fiscal 2023. Officeworks’ sales for the early part of fiscal 2024 are also consistent with the prior year.

In terms of earnings, Wesfarmers expects a sharp decline in the existing operations of its industrial business, WesCEF, during fiscal 2024. This decline is primarily due to lower ammonia prices and higher input gas costs. However, the company anticipates a boost from its new lithium business, which is projected to commence production during fiscal 2024.

Overall, Wesfarmers remains proactive in navigating the current economic landscape. By anticipating cost pressures and addressing changing consumer preferences, the company aims to maintain its position as a leader in the retail industry.