Wesfarmers (WES): presented their first half 2025 results, demonstrating that WES’ businesses are performing well, taking market share. What we saw today is the sales momentum from 2H 2024 has continued. The HNW Equity Portfolio has a 5% weight and the Income a 4% weight to WES.

Key Points:

  • Record Profits: Earnings increased by 3%, to $1.5 billion, driven by a 7% increase from Kmart group (Kmart & Target) earnings following strong growth in their home brand, Anko apparel brand. Bunnings profits were rock solid, and WesCEF (Chemical, Energy and Fertiliser) and Officeworks posted small increases.
  • The Strength of Bunnings:  We were surprised at the continued strength of Wesfarmers’ flagship company, Bunnings. Profits grew by 3% and continue to dominate after record years from the Covid pandemic’s work-from-home restrictions and renovations. Bunnings was able to grow its profits by controlling its costs very closely, especially around labour costs, as it continues to face inflationary pressures. Bunnings is an excellent business with a 13% profit margin and an impressive 72% annual return on capital.
  • Balance Sheet: WES has a very strong balance sheet with a net debt position of $3.9 billion, paying off $500 million over the half. Debt/EBITDA is 1.7x below the target range and debt costs a low 3.9%.
  • Dividends Up: Wesfarmers announced a half-year fully franked dividend of $0.95, up 4.3%, continuing a progressive dividend policy (See Below). WES also announced that they will be neutralising their Dividend Reinvestment Plan and purchasing the shares on-market. This will see a buy-back of around $200M.
  • Guidance: Wesfarmers did not provide any explicit guidance. However, 2025 has started off well with sales growth across all businesses. Shutting down loss-making Catch.com will add n additional $80 million per annum to NPAT.

Portfolio Strategy: WES give the portfolio exposure to a stable, diversified stream of earnings exposed to the Australian economy primarily through hardware (Bunnings), office supplies (Officeworks), discount department stores (Target and Kmart), pharmacy (Priceline), chemicals and in the near future lithium.  WES is a very well-run company, with CEO Rob Scott consistently making good moves for shareholders since taking over in 2018. In the Portfolio, we only own the retailers that dominate their markets (Wesfarmers and JB Hi-FI) and are the lowest-cost operators. This result from WES shows that value-conscious consumers are still happy to open their wallets.

WES finished up +1.33% to $77.62