Why has the Wesfarmers (WES) share price lifted?

Posted: 17 January 2022 12:32 pm
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Shares in the retailer have lost about 6% of their value in the last 6 months but rallied today.

Shares in conglomerate Wesfarmers (ASX: WES), the owner of retail chains Bunnings and Officeworks, are among the most traded stocks on the ASX on Monday.

At the time of writing, the stock was up 2.1% at $55.10.

Why is the WES stock price running higher?

The higher share price is likely an indication of investor relief after Wesfarmers on Monday said it expects first-half net profit to come in between $1.18 billion and $1.24 billion, in line with its previous forecast, despite pressure on trading due to the spread of the Omicron coronavirus infections.

Traders had feared an impact on the retail conglomerate’s bottom line amid reports of widespread staff shortages and store closures in the retail industry because of raging infections that are forcing staff to isolate.

Wesfarmers felt a severe impact last year when lockdowns due to the Delta outbreak had forced numerous closures of Bunnings stores.

In recent weeks, supermarket giants Coles (ASX: COL) and Woolworths (ASX: WOW) among other major retailers have reported staff shortages of between 30% and 35% at their stores and distribution centres. This has led to an escalating supply chain crisis for essential goods such as food and pharmaceuticals.

Both companies are expected to report a hit to their revenue and bottom line.

Wesfarmers also said retail trading conditions had weakened in the last 2 weeks of the 2021 calendar year, and customer traffic at stores remained subdued during the first half of January, but managed to stave off any impact on its profit guidance.

Trading impact

The company said ​​the bulk of the impact from pandemic disruptions and costs was felt at its Kmart and Officeworks businesses.

Combined sales at Kmart and Target declined 10.3% for the first half and are down 5.2% over 2 years.

Its online retail business Catch also showed just 1% sales growth.

Expectations for Kmart's earnings have halved to $170 million-$180 million, compared to $487 million a year ago.

The Catch business is likely to post a loss of between $43 million and $45 million for the 6-month period.

However, performance was boosted by what Wesfarmers termed as “pleasing results” at the cash cow Bunnings chain as well as in the chemicals, energy and fertilizers businesses.

It did not elaborate on the gains in those businesses but Bunnings contributed nearly 62% of Wesfarmers’ earnings last year and the company reported a 40.2% surge in net profit in FY21 as sales at the hardware business boomed amid rising household spending.

The conglomerate could soon have another business line as it readies for a $764 million takeover of Australian Pharmaceutical Industries, which operates the Price­line chain of chemists, after rival Woolworths abruptly withdrew its own bid earlier this month.

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