The Wesfarmers Ltd (ASX: WES) share price performed well in August, rising by 9% as we can see on the chart below, while the S&P/ASX 200 Index (ASX: XJO) dropped by 1.4%.
The ASX 200 is made up of the returns from all 200 businesses within the index. The biggest companies will have the largest impact on the ASX 200's returns. Two of the biggest had a negative month – the BHP Group Ltd (ASX: BHP) share price dropped 2.5% in August, while the Commonwealth Bank of Australia (ASX: CBA) share price fell 3.3%.
What happened for Wesfarmers that it outperformed so well? It looks like investors responded positively to the company's FY23 result.
Earnings recap
Total revenue grew 18.2% to $43.5 billion, while revenue excluding the healthcare division rose 7.4% to $38.2 billion. Earnings before interest and tax (EBIT) rose 6.3% to $3.86 billion and net profit after tax (NPAT) went up 4.8% to $2.47 billion. The annual dividend per share improved by 6.1% to $1.91. Profitability can be integral when investors analyse Wesfarmers shares.
The Australian economy faces a few challenges, including ongoing inflation and high interest rates. It'd be understandable if Wesfarmers' retail businesses were struggling in this environment, yet Kmart Group and Bunnings managed to keep delivering growth.
In the full year, Bunnings revenue increased 4.4% to $18.5 billion and earnings rose 1.2% to $2.23 billion, while Kmart Group revenue rose 16.5% to $10.6 billion and earnings jumped 52.3% to $769 million.
Even in the six months to June 2023, the three main divisions delivered earnings growth, with Bunnings earnings rising 0.7%, Kmart Group earnings increasing 3.9% and WesCEF earnings improving 7.1%.
Outlook for Wesfarmers shares
In terms of thoughts about the current environment, Wesfarmers said that "in the current environment, the strong value credentials and core offer of everyday products across the group's retail businesses position them well to meet changing customer demand, acquire new customers and profitably grow market share."
In the first seven weeks of FY24, Kmart Group sales continued to grow with "strong trading results". Wesfarmers implied that Bunnings sales had grown in the low single digits at the start of FY24 by saying its growth rate was similar to the second half of FY23 (which was 2.4%). Meanwhile, Officeworks sales were flat in the first seven weeks of FY24.
FY24 WesCEF earnings are expected to "decline significantly", but the lithium earnings are expected to start in the second half of FY24.
Analyst projections for Wesfarmers
According to Commsec, the business is projected to generate earnings per share (EPS) of $2.21 in FY24 and pay an annual dividend per share of $1.92.
That means Wesfarmers shares are valued at 24 times FY24's estimated earnings with a projected grossed-up dividend yield of 5.1%.
Wesfarmers share price snapshot
Over the past 12 months, Wesfarmers shares climbed 15% and the ASX 200 has gone up by around 7%.
