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Uptick in Wesfarmers dividend despite retail sector slump

In defiance of prevailing market trends characterized by sluggish retail sales and dwindling profits, Wesfarmers (ASX:WES), propelled by the stellar performance of its Kmart retail group comprising Kmart and Target, has announced a commendable uptick in its interim dividend. The retail conglomerate reported a commendable 3% surge in statutory net profit after tax to a substantial $1.425 billion for the half-year ending December 31, a disclosure made to the ASX on Monday.

This impressive financial feat has translated into a notable 3.4% increment in the interim dividend, now standing at 91 cents per share, up from 88 cents recorded in the corresponding period of December 2022, effectively keeping pace with the inflation rate.

Kmart spearheaded this remarkable performance, boasting record-breaking first-half earnings buoyed by robust growth in apparel sales. Concurrently, the Bunnings hardware chain reaped the rewards of unwavering consumer and commercial demand, further bolstering the conglomerate’s financial standing.

Scott, the CEO of Wesfarmers, attributed the success of the retail divisions to their adept responsiveness to evolving customer preferences, particularly a growing inclination towards value-centric offerings. The net earnings, surpassing analyst forecasts pegged at approximately $1.34 billion, underscore the astute strategies deployed by the company to navigate prevailing market challenges.

Despite a modest half-percent increase in total revenues, reaching $22.67 billion in the latest reporting period, Kmart’s sales surged by an impressive 4.8% to $5.99 billion, while Bunnings witnessed a commendable albeit marginal uptick of 1.7% to $9.96 billion.

Wesfarmers highlighted the pivotal role played by proactive productivity and efficiency initiatives, coupled with robust supplier partnerships, in mitigating persistent cost pressures, thereby ensuring continued value delivery to customers.

The record earnings posted by the Kmart Group, soaring by over 26% to an unprecedented $601 million, underscore the resounding success of its value-driven product portfolio and cost optimization measures.

Officeworks, another constituent of the Wesfarmers portfolio, sustained its growth trajectory driven by continued expansion across various product categories. Meanwhile, Bunnings continued its upward trajectory, buoyed by sustained growth in both consumer and commercial sales, with earnings edging up by 0.3% to $1.282 billion.

The strategic enhancements introduced by OnePass during the reporting period, including new retail partnerships and enhanced customer benefits, have not only facilitated customer acquisition and retention but also contributed to incremental sales across Wesfarmers’ business verticals.

Amidst this stellar performance, WesfarmersHealth observed a marginal dip in sales to $2.74 billion, although earnings remained steady at $27 million. Conversely, WesCEF’s operating performance remained robust, notwithstanding the impact of lower global commodity prices, which saw a revenue decline of 21% and a significant earnings downturn of 46.9% to $172 million.

Looking ahead, Wesfarmers remains cautiously optimistic but warns of persistent inflationary pressures, driven by escalating costs across various operational facets. Nevertheless, the company remains steadfast in its commitment to navigating these challenges while sustaining its growth trajectory.

With promising sales growth witnessed in the early stages of the second half, particularly from Kmart, and Bunnings maintaining its momentum, Wesfarmers anticipates a net capital expenditure ranging between $1 billion and $1.2 billion for the fiscal year 2024, contingent upon property investment and project expenditures’ timing.