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"Pleasing" Sales Growth for Wesfarmers in Q1

"Pleasing" Sales Growth for Wesfarmers in Q1
Oct 22, 2015 By Simon Herrmann Tags: WES

Diversified retailer Wesfarmers Limited (ASX:WES) released its retail sales results for the first quarter of FY16 showing modest sales growth across most divisions.

Wesfarmers is the owner of foot & liquor retailer Coles, home improvement store Bunnings, office suppler Officeworks as well as Kmart and Target. 

The Coles division experienced a 2.1% increase in total sales for the quarter which was mainly due to a 4.7% rise in foot and liquor sales. Convenience sales fell 7.8% due to a decline in fuel sales. Total; sales for Coles were $9.43bn compared to $9.23bn during the first quarter of FY15.

Bunnings’ total sales increased nearly 12% during the quarter as the home improvement chain continues to see strong organic growth. The strong sales figures will weigh on competitor Masters, which is owned by Woolworths Ltd (ASX:WOW). Sales totalled $2.48bn compared to $2.22bn last year.

Office supplier Officeworks achieved total sales of $429m for the quarter, up 6.5% compared to the previous corresponding period (pcp).

Kmart’s results were driven by strong sales in Home, Kids and Apparel which propelled sales 12.5% higher to $1.12bn for the quarter. Wesfarmer’s second department store chain Target grew sales by 3.1% to $776m.

Wesfarmers’ Managing Director Richard Goydor was “pleased” with the performance in the first quarter and commented on the results: “Good momentum in our retail portfolio continued through the first quarter of the 2016 financial year. This was supported by the continued reinvestment of productivity improvement into lower prices, improved customer service, better ranges and further store network optimisation.”

Wise-owl’s Take

Wesfarmers’ sales momentum remains solid despite challenging conditions for diversified retailers as new competitors push into the market space. German discount retailer Aldi continues to gain market share and another similar chain called Lidl is set to enter the Australian market. Wesfarmer’s share price has declined ~2.5% year to date, broadly in line with the ASX200. Wesfarmers organic sales growth coupled with optimisation of its supply chain network has led to efficient operations which are likely to continue in the second quarter. However Woolworths has increased capital expenditure to strengthen its market position and with ever increasing competition from other players, Wesfarmers may face tougher conditions in the second half of FY16. WES’ dividend yield is appealing for anyone looking for income and franking credits.

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Simon Herrmann Author: Simon Herrmann Oct 22, 2015

Simon is a financial analyst at independent research firm Wise-owl who wants to change the world by disrupting the cliché approach to investment decision making with convergent thinking. Wise-owl’s goal is plain and simple: Find the best opportunities for our members by following a proven methodology and to create long-term value through high-quality advice, innovation, technology and education. We combine industry experience and the agile mentality of a start-up. Wise-owl is the future of stock market investing.

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