The Wesfarmers Ltd (ASX: WES) share price will be one to watch this morning after the release of a COVID-19 update.
How has Wesfarmers been performing?
Wesfarmers revealed that its Bunnings and Officeworks businesses have been particularly strong performers over the last couple of months.
According to the release, both businesses have experienced significant demand growth. Management notes that this has been driven by customers and their families spending more time working, learning, and relaxing at home.
As a result of this demand, sales growth in Bunnings and Officeworks for the third quarter of the financial year and the first three weeks of April has increased relative to levels achieved in the first half of the financial year.
However, given the disruption to usual customer shopping patterns and potential future changes to government measures, management warned that it is uncertain whether the higher levels of sales growth will continue for the remainder of the financial year.
Wesfarmers also revealed that its Catch online business has continued its positive progress. It has achieved very strong growth in gross transaction value in both the marketplace and in-stock offering.
Elsewhere, its Kmart and Target businesses recorded third quarter sales growth that was broadly in line with the levels achieved in the first half of the financial year. It notes that this growth was supported by strong online sales.
Though, management has advised that in-store sales momentum has moderated in Kmart and has declined significantly in Target over the last few weeks. This reflects the broader decline in customer footfall in shopping centres and ongoing weakness in discretionary categories, particularly apparel.
The company expects these trends to persist while social distancing and isolation measures remain in place, and while many tenants and activities within major shopping centres are not operating.
It warned that its high degree of fixed costs means that a sustained decline in sales momentum will have a material impact on the profitability of Kmart and Target. Furthermore, in recent weeks, margins have been impacted by higher levels of clearance activity and the increased cost of online fulfilment. And while Kmart remains profitable, Target earnings have decreased significantly.
The latter has led to management accelerating its plans to improve the unsatisfactory financial performance of Target. These plans include a review of a range of actions to improve shareholder returns and assessment of strategic options for a commercially viable Target.
Balance sheet strength.
The company has been taking various actions to strengthen its balance sheet. This includes the recent sale of a 5.2% stake in Coles Group Ltd (ASX: COL).
Combined with its existing cash reserves and the extension of its debt facilities to $5.3 billion, management believes the company has the capacity to withstand and respond to a range of economic scenarios. It also supports its operating businesses and the pursuit of investment opportunities.
Wesfarmers Managing Director Rob Scott commented: "COVID-19 has had a profound impact on our way of life and business operations and the actions we are taking with our balance sheet and in our businesses are focused on sustaining performance in an uncertain future."
"We recognise that this is an uncertain and worrying time for many team members and customers. Across the Group, we remain focused on the health and safety of our team and our customers and the actions we can take to support our team, our customers, our suppliers and the community," he concluded.
