Shares of Wesfarmers Ltd (ASX: WES) fell 1.3% in early trade today following the release of its half-year financial report.
Here are six things all investors must know about Wesfarmers' half-year report for the period ended 31 December 2015:
- Revenue rose 4.7% to $33.4 billion
- Profit came in at $1.39 billion, up 1.2%
- An interim fully franked dividend of 91 cents per share was announced, up 2.2%
- Coles reported profit growth of 5.6%
- Bunnings Warehouse & Officeworks (reported together) upped profit an impressive 13.8%
- The new 'Department Stores' division, an amalgamation of Kmart and Target, reported profit growth of 9.5%
Commentary
Wesfarmers put in another strong half-year despite profit rising just 1.2%. Indeed, the Resources business reported a $118 million loss, down from a $35 million profit, while profit from the Industrial business fell from $50 million to $36 million.
"The Group's retail portfolio delivered a strong increase in earnings before interest and tax (earnings or EBIT) of $176 million or 9.2 per cent during the half supported by good Christmas seasonal trading in all businesses," Wesfarmers' Managing Director, Richard Goyder, said. "Due largely to a substantial decline in revenue in the Resources business, and despite a continued strong focus on cost reduction, earnings across the Industrials division were $158 million lower."
Net debt (cash minus debt) grew from $5.14 billion to $6.1 billion year-over-year, but operating cash flow also grew 6.9%.
Coles
"The good momentum in Coles' food and liquor business continued during the half," Mr Goyder said. "Coles continued to make improvements in its fresh offer, resulting in increased transaction volumes and basket size." Coles' revenue rose from $19.5 billion to $20.1 billion.
Home Improvement & Office Supplies
The other strong performer was the Home Improvement & Office Supplies business, which includes Officeworks and Bunnings Warehouse. "Bunnings produced another very strong result in the half," Mr Goyder said. "Officeworks' results included growth across every channel, driven by improvements in store layouts, the introduction of new merchandise categories and further investments in both its business-to-business offer and digital platform."
Other
"The Group has also announced a restructure of its department store businesses into a newly created Department Stores division…This restructure will enable Kmart and Target to maximise and share opportunities where appropriate while maintaining and growing these iconic Australian brands," Mr Goyder said.
Outlook
Looking ahead, the company remains optimistic for most of its businesses. The major exceptions to the positive sentiment are the mining and resources focused businesses, where significant uncertainty has arisen in the wake of falling mining investment. Nonetheless, the long-term outlook for Wesfarmers' major cash-producing businesses is positive.
Foolish takeaway
Although the headline profit growth figure isn't spectacular, I think today's report is a big positive for investors and shareholders. All the major businesses are doing well and despite the near-term outlook being a little mixed, the long-term outlook for Officeworks, Bunnings and Coles remains positive. The same cannot be said for Metcash Limited (ASX: MTS) (owner of IGA) and Woolworths Limited (ASX: WOW).
Wesfarmers' shares are a little expensive for my liking, but investors could do worse than add it to their long-term watchlists, in my opinion.
