Wesfarmers Ltd (ASX:WES) has reported a statutory net profit after tax (NPAT) of $2,557 million for the full year ending June 30, 2024, reflecting a 3.7% increase from the previous year.
Divisional operating cash flows, before interest, tax and lease liabilities repayment, rose 4.0%, driven by disciplined net working capital management at Bunnings, despite lower earnings at WesCEF due to declining global commodity prices and increased working capital investment in Health. Divisional cash generation reached 101%.
The company's reported operating cash flows increased 9.9% to $4,594 million, with a cash realisation of 105%, aided by the strong divisional cash flow and lower tax payments due to timing factors.
Wesfarmers' inventory balance grew by 1.0% to $6,102 million by June 30, 2024, with strong overall inventory health and improved stock turnover in Bunnings and Kmart Group.
The group reduced its Debt to EBITDA ratio to 1.8 times from 1.9 times the previous year, maintaining significant balance sheet flexibility. This financial stability supports ongoing investment activities and provides the capacity to manage risks and opportunities under various scenarios.
"Wesfarmers, which owns some of Australia's largest household brands, had a strong financial year in 2024 despite various macroeconomic challenges," eToro market analyst Farhan Badami said.
"The conglomerate reported a net income of A$2.56 billion, up 3.7%, meeting analyst expectations. Its robust profits saw its dividend grow once again, which will leave shareholders smiling.
“Bunnings, the company's flagship hardware store, continued to be the star of the show, with revenue climbing 2.3% to A$18.97 billion, just about surpassing market estimates. However, Bunnings could be getting too big for its boots, with growing talks of a government inquiry looking into how it deals with customers and suppliers.
"This is a similar story to what we’ve seen in recent times with major supermarkets and this could prove to be a headache for one of Australia's largest retailers down the track.
“On the flip side, Wesfarmers strength lies in its diverse portfolio, which helps the company wisely spread its risks across various sectors.
"Moving on to another one of its big-name brands, Kmart, investors will be pleased to see the retail chain posting strong revenue growth for the first eight weeks in the second half of 2024.
"Many feared high inflation and high interest rates would soften consumer spending, which in turn would dampen revenue and profitability.
"Kmart's unique advantage is its range of affordable goods, which appeals to households across the spectrum, especially if consumers are looking to downtrade (swap from their standard products to more cost-effective ones) in a challenging environment.
"Therefore, it's no surprise to see the continued strong performance of a brand that is also feeling the love among Gen Zs with its ‘dupe'-like products, which are proving to be a hit.
“Looking ahead, the company expects capital expenditures to reach A$1.1 to A$1.3 billion. With inflation dropping and most analysts predicting upcoming rate cuts, Wesfarmers would certainly benefit from lower interest rates should it decide to tap into some debt to maintain its capital expenditures."
Strength in diversity
Managing director Rob Scott said the growth in profit and cash flows highlighted the quality of the group’s portfolio of businesses and strength of execution in a challenging market environment.
“We expected a challenging year and there were numerous headwinds to navigate with cost of living pressures, rising costs of doing business, subdued activity in residential construction and significant volatility in key commodities.
"In this environment, our divisions maintained their focus on profitable growth and shareholder returns by delivering more value, choice and reliability to our consumer and commercial customers. This is a credit to our 120,000 team members across the group.
“Wesfarmers’ businesses executed well, with the retail divisions responding effectively as households increasingly shifted to value during the year. Sales and earnings growth in the retail divisions was supported by everyday low price offerings and products with broad customer appeal.
“The group benefited from improvements in productivity and efficiency which was the result of a proactive focus and ongoing investment in recent years. These improvements enabled the divisions to provide compelling value for customers and mitigate ongoing cost of doing business pressures.
“Bunnings demonstrated the resilience of its offer and ability to deliver growth through a range of market conditions, with higher sales growth recorded in the second half.
"Kmart Group’s performance was a standout, delivering significant earnings growth supported by the market-leading value credentials of its Anko products, unique sourcing capabilities and actions to reduce costs.
"At Target (NYSE:TGT), the sale of Anko products performed well and the integration of Kmart Group systems and processes progressed in line with expectations.
“As outlined at the half, WesCEF’s earnings were impacted by lower global commodity prices but operating performance was strong with good plant production rates.
"While the focus remains on efforts to progress construction and commissioning of the Kwinana lithium hydroxide refinery, this year WesCEF achieved an interim milestone with its first shipment of spodumene concentrate in March 2024.
“Overall, Wesfarmers’ NPAT growth of 3.7% reflected pleasing earnings growth in the retail divisions, partially offset by higher borrowing costs due to an increase in average interest rates and lower capitalised interest.
“As a result of the full-year result, the Wesfarmers Board has determined to pay a fully-franked final dividend of $1.07 per share, bringing total fully-franked ordinary dividends for the year to $1.98 per share, an increase of 3.7% on the prior year.”
The wash-up
Wesfarmers reported NPAT growth of 3.7%, driven by solid earnings growth in the retail divisions. This was partially offset by higher borrowing costs due to an increase in average interest rates and a reduction in capitalised interest.
In light of the full-year financial results, the Wesfarmers board has approved the payment of a fully-franked final dividend of A$1.07 per share. This brings the total fully-franked ordinary dividends for the year to A$1.98 per share, representing a 3.7% increase from the previous year.