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Why has the Wesfarmers (WES) share price dived?


Shares in the owner of Bunnings and Officeworks have lost about 14% of their value in the last 6 months.

Shares in conglomerate Wesfarmers (ASX: WES), the owner of retail chains Bunnings and Officeworks, are among the worst performers on the ASX on Thursday. At the time of writing, the under-pressure stock was down a further 6.5% to $51.32.

Meanwhile, shares in supermarket giants Coles (ASX: COL) and Woolworths (ASX: WOW) are trading marginally higher.

Why is the WES stock price losing ground?

Wesfarmers has reported a nearly 13% drop in first half profit to $1.21 billion as the conglomerate struggled against disrupted supply chains and higher costs on its business from the pandemic.

While the profit for the 6 months to December came in within the $1.18 billion to $1.24 billion range the company had outlined last month, it still stunned investors by dropping its dividend to 80 cents a share from 88 cents a year ago.

"The first half of the 2022 financial year was the most disrupted period for our businesses since the onset of COVID-19, with extended government mandated store closures and trading restrictions in Australia and New Zealand," managing director Rob Scott said.

Wesfarmers said retail trading conditions stayed subdued in January as rising cases of the Omicron variant impacted customer traffic as well as staff availability, but added that trading momentum has improved in recent weeks. However, the company expects supply chain constraints in the system to persist into the second half.

Trading impact

Wesfarmers said operating cash flows dropped around 30% in the 6 months to December, to $1.56 billion, mainly due to lower earnings and higher working capital as it invested heavily to cope with the impact of store closures and dislocation to its operations.

Revenue at its hardware giant Bunnings rose 1.7% to $9.21 billion but the cash cow business saw earnings fall 1.3% to $1.32 billion as it faced major disruptions and adjusted to sales returning to normal after a boom during the pandemic.

Revenue for Officeworks increased 3.7% to $1.58 billion, but earnings slid 18% to $82 million. Sales were higher due to continued strong demand in technology and furniture, but this was partially offset by declining sales in higher-margin office supplies and print and copy categories.

Relative to the group's other businesses, Kmart Group in particular was hardest hit by the temporary store closures between July and October. Kmart Group's sales dropped 9.6% to $4.92 billion while earnings plunged 63% to $178 million. Kmart's and Target's performances were significantly impacted by restrictions, with almost 25% of store trading days lost due to government mandated store closures.

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