Wesfarmers cuts dividend, costs surge and Kmart earnings plunge -63%

Wesfarmers (ASX: WES) has cut its dividend by -9% as ongoing covid-related disruptions and costs weighed on the company’s retail businesses. 

Financials at a glance: 

• Revenue of $17.76bn, down -0.1% 

• Net profit of $1.2bn, down -12.7%

• Operating cash flows of $1.56bn, down -29.8% 

• Interim dividend of 80 cents per share, down -9.1%

While potentially startling for some investors, the net profit figure was in-line with the company’s prior guidance between $1.18bn and $1.24bn.

“The first half of the 2022 financial year was the most disrupted period for our businesses since the onset of COVID-19, with extended government-mandated store closures and trading restrictions in Australia and New Zealand,” said Managing Director Rob Scott. 

“In addition, operating costs and stock availability were impacted by ongoing supply chain disruptions and elevated team member absenteeism.”

Bunnings floats, Kmart sinks 

Bunnings earnings held their own, down just -1.2% to $1.26bn.

Scott hailed Bunnings' resilience "in the context of the significant disruptions to trading conditions during the half and the very strong growth in the prior corresponding period.”

Conversely, Kmart Group earnings slid -63.4% to $178m, reflecting the significant impact of government-mandated store closures, which led to a loss of almost -25% of store trading days during the half. In addition to elevated costs, low stock availability and paying team members during lockdowns.

Why cash flows have taken a hit 

The outsized decline in cash flows was impacted by the decision to purchase additional inventory while covid-related disruptions persist. As well as a $139m investment towards the development of the Mt Holland Lithium project.

Wesfarmers expects net capital expenditure to be between $900m and $1.1bn for FY22, a 42-74% jump compared to last year.

FY22 outlook 

Wesfarmers hasn’t experienced a V-shaped recovery like prior lockdowns and covid outbreaks. 

“Retail trading conditions were subdued in January due to rising cases of the COVID-19 Omicron variant impacting both customer traffic and labour availability, but trading momentum has improved in recent weeks.”

The company expects supply chain disruptions, elevated transport costs and labour constraints to continue in the second half. 

Wesfarmers did not provide a full year guidance.