Wesfarmers FY24 Earnings Call Highlights

Wesfarmers (ASX: WES) shares declined on Thursday despite the company's FY24 results meeting analyst expectations. The stock's sell-off can be attributed to a lack of growth catalysts and its relatively high valuation, trading at approximately 31 times FY25 earnings.

FY24 Earnings Summary

• Revenue up 1.5% to $44.18bn

• Net profit up 3.7% to $2.55bn

• EPS up 3.6% to 225.7 cents

• Operating cash flow up 9.9% to $4.59bn

• Total dividend for FY24 up 3.7% to 198 cents per share

• Outlook – First 8 weeks of FY25 performance includes Kmart (in-line with growth in 2H24), Bunnings (positive sales but growth has moderated) and Officeworks (sales growth slightly ahead of 2H25 growth)

Goldman Sachs said the FY24 result was largely in-line with expectations, with second-half EBIT tracking 0.6% below their forecasts. The analyst said the stock sold off due to a softer Bunnings first 8-week run rate and no stand-out growth catalysts in other segments.

Earnings Call Highlights

The below topics have been answered by CEO Rob Scott, CFO Anthony Gianotti, Bunnings MD Michael Schneider, Kmart MD Ian Dailey, Officeworks MD Sarah Hunter and CEF MD Ian Hansen.

FY24 performance: "Our businesses demonstrated strong operational execution ... with continued cost of living pressures, subdued activity in residential construction, and volatility in key commodity prices."

Divisional performance: "At a total level, divisional earnings increased 1.8% for the year ... with the strong results in retail more than offsetting the impact of lower commodity prices and earnings in WesCEF."

Bunnings performance: "Bunnings demonstrated the resilience of its offer ... expanding its range with innovation across categories such as smart home."

Kmart performance: "Kmart Group's performance was a standout with earnings growth of nearly 25%, highlighting the market-leading value its Anko products."

Officeworks performance: "Officeworks continue to focus on evolving its product offer and gained market share in technology."

Lithium progress: "At our Covalent joint venture, the focus remains on developing the integrated mine, concentrator, and refinery ... we expect the project to deliver satisfactory returns over the long term."

Retail strategy: "Across the retail portfolio, the focus remained on keeping prices low, which supported growth in transactions and sales dollars, and allowed our businesses to further fractionalise costs."

Inflation outlook: "We had expected some of these challenges, especially with persistent cost pressure and inflation ... Our retail businesses benefited from their everyday low price positioning, which resonated with customers in the current environment."

Capturing new demographics: "Our businesses are continuing to meet changing customer needs ... capturing a greater spend from younger generations such as Gen Zs and Millennials while continuing to meet the needs of the broader market."

Consumer spending preferences: "As household budgets remained under pressure, consumer sales growth was supported by Bunnings' strong value credentials with bulk pack quantities, own brand products, and entry-level ranges all performing strongly."

Capital management: "Due to the continued growth in profit and cash flows, the board has resolved to pay a fully franked final dividend of $1.07 per share, which brings the total dividend for the year to $1.98 per share, a 3.7% increase."

Analyst Q&A Highlights

On Bunnings growth slowing in the second half: "Hopefully, that gives you a bit of a perspective that we sort of see space growth continuing to be sort of that 10% over the five-year period, but just some timing on some of the projects."

Will productivity gains achieved in 2024 continue at the same level in 2025: "I think what we're seeing, I'm not sure you'd agree, the step change in performance in 2024 is unlikely to occur again in 2025 to the same magnitude."

Is Bunnings still a growth business or ex-growth business given the drop in Capex: "But I don't see anything for Bunnings other than being a growth business ... When construction costs are really high and there's a shortage of trades, it's just often not sensible at that moment in time to be throwing a lot of money around."

On trade category trends: "We've seen a really pleasing consumer engagement. We've got more customers in store than we've ever seen. They are certainly putting a little bit less in the basket."

DIY segment performance: "It's pleasingly strong, but I wouldn't say that you sort of it's shooting the lights out or anything like that. I just think what we've got is good momentum."

Impact on international supply chain and shipping routes: "I don't see any near-term impact on the Kmart business of any of the increases in spot rates."

Earnings growth in FY25: "At this stage, it's very hard to provide any definitive forecast for FY25. We certainly don't see significant upturn in earnings going forward. But at the same time, we do see a few challenges on the horizon."

This article was generated with the support of AI and reviewed by an editor.