The Wesfarmers Ltd (ASX: WES) share price has grown 4.44% since it delivered its report, which is an interesting contrast to Woolworths Limited (ASX: WOW) which fell by 2.6% today after delivering profit growth.
I would describe the Wesfarmers report as mixed at best.
Statutory net profit after tax (NPAT) was down by 86.6% after a large write down of its Bunnings UK & Ireland business. Even without significant items, underlying NPAT dropped by 2.7%. The one good part to the overall result was that revenue grew by 2.8%.
In the December 2016 result Coles was the biggest earner for Wesfarmers in earnings before interest and tax (EBIT) terms, but in the December 2017 result the EBIT dropped by 14.1%.
Fortunately, the Bunnings Australia & New Zealand EBIT grew by 12.2% to mitigate a lot of the overall profit reduction.
A key problem for future growth for Wesfarmers is online retail. The simple fact is that the online retail economic model means that it's cheaper for a company to deliver products from a warehouse in a low-cost area, particularly if automation is involved, than it is for a bricks and mortar company to rent in high-cost areas and pay staff wages like most of Wesfarmers' businesses.
Management can point to total online retail sales of $761 million, which is up by 22% compared to last year. Officeworks offers free click & collect as well as free same day delivery. Coles is expanding its click & collect sites as well as opening a second dark store. It's also trailing Airtasker as a solution to offer anytime, anywhere shopping.
It remains to be seen if this is enough. Most of Wesfarmers' business is geared for the bricks and mortar model of retailing.
Foolish takeaway
The only reason I think Wesfarmers could be a buy is its grossed-up dividend yield of 7.49%. I don't believe that Wesfarmers will be a market-beater at the current price, investors would likely be better served looking elsewhere for dividends and growth.
