Why has the Wesfarmers (WES) share price lifted?

Posted: 22 October 2021 12:42 pm
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Shares in the owner of Bunnings and Officeworks have lost more than 15% since the full year results in August.

Shares in conglomerate Wesfarmers (ASX: WES) who owns a spate of retail businesses including Bunnings, Officeworks, Kmart, Target and Catch are among the most traded stocks on the ASX on Friday. At the time of writing, the shares were up 3.4% at $57.40 on much higher than usual volumes.

Why has the WES stock price changed course?

Wesfarmers’ investors were in a positive mood after the Perth-based diversified company’s annual general meeting on Thursday, where chief executive Rob Scott pointed to the perfect storm for the retail sector.

The CEO pointed out high vaccination rates and consumer confidence is providing a strong tailwind for the sector.

The company, which is highly exposed to the retail sector, has been a key beneficiary as key states in Australia, particularly New South Wales, have emerged from lockdown after achieving 80% double vaccination rates.

Wesfarmers notes it's seeing pent up demand from consumers who are now pouring into its stores.

“We have seen strong sales growth across stores in affected areas that have started to reopen, including those in NSW last week, demonstrating a level of pent up demand in these areas,” Mr Scott said in his address to shareholders at the AGM.

The optimism is in contrast to the update at the time of its full year results in August when Wesfarmers had revealed that sales at each of its retail arms had fallen in the first few weeks into fiscal 2022.

Important trading period

But those sales declines experienced in the first 8 weeks of the fiscal year have turned around.

While Kmart and Target continued to be affected by temporary store closures, there had been an improvement in sales for Bunnings, Officeworks and Catch since August.

At cash cow Bunnings, sales growth from commercial customers has been strong which, combined with elevated online sales, partially offset lower consumer sales growth.

The Officeworks chain is also making solid headway, with more than half of its sales coming from online channels. Profit margins have been softening though as shoppers shift towards technology products and furniture.

“Our retail businesses have been effective in managing the disruptions in global supply chains and are well positioned with inventory for the important Christmas trading period,” Mr Scott said.

That improvement could start to reflect in the performance of the Wesfarmers stock, which has lost more than 15% of its value since the announcements in August.

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