Wesfarmers Ltd (ASX:WES) has recorded a stronger-than-expected interim net profit of $1.42 billion, buoyed by record earnings from its discount retail divisions, Kmart and Target (NYSE:TGT).
This performance helped offset the stagnant growth experienced by its Bunnings and Officeworks chains.
Despite these positive results, the retail conglomerate cautioned about the ongoing economic cost pressures and supply chain challenges that could impact future profitability.
The company's century-old conglomerate model proved effective in navigating these turbulent times, allowing it to counterbalance the losses from its online marketplace Catch and a significant downturn in its chemicals and energy division with the robust performances of Kmart and its industrial services sector.
Wesfarmers announced a 3% rise in its December half profit, with earnings increasing by 1.6% to $2.19 billion. This growth was supported by a diverse portfolio that generated sales of $22.67 billion, a slight increase of 0.5% from the previous period, aligning with market expectations.
Significantly exceeding analyst predictions, Wesfarmers also raised its interim dividend to 91 cents per share, payable on March 27.
While Bunnings showed modest growth and Officeworks reported a slight earnings increase, the standout performer was Kmart, alongside Target, which together achieved a notable 26.5% jump in earnings to $601 million.
Kmart's sales climbed by 5% to $6.08 billion, with a remarkable return on capital for the division. In contrast, Target saw a decrease in sales.
Despite challenges faced by its chemicals and energy arm and losses at Catch, the company's diverse retail offerings and focus on productivity and efficiency drove its financial success in the first half of the year.
Retail divisions play major role
Wesfarmers' managing director Rob Scott credited the impressive half-year performance to the strength of the company's business model and the strategic execution of its retail divisions.
“Wesfarmers’ retail divisions executed strongly during the half, responding effectively to changing customer needs as households increasingly sought out value,” Scott said.
“In this environment, the retail divisions’ core offer of everyday products with market-leading value credentials supported growth in sales and customer transaction numbers.
“The retail divisions have benefited from a proactive focus on productivity and efficiency initiatives in recent years, which together with their unique sourcing capabilities and strong supplier partnerships enabled them to mitigate ongoing cost pressures and provide compelling value for customers during the half.”