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How did the sale of Coles affect Wesfarmers’ profit?

Jessica Amir

August 21, 2020

One of the top ten companies on the ASX, Wesfarmers (ASX:WES), the owners of Bunnings, Kmart and Officeworks reported its full year financial results, here’s what you need to know.

The shift to working from home coupled with economic stimulus to households put a fire cracker up Bunnings, Officeworks and Catch sales, which fueled up net profit after tax (NPAT) by 8% to $2.1 billion. This result was better than what the market was expecting, but if you take out discounted operations, i.e. the Coles business, then you’d see its profit fell 69% to $1.7 billion and that was under what the market expectations.

Wesfarmers’ revenue grew 11% to $30.8 billion, with online sales soaring 60% due to COVID-19.

Its earnings before interest and tax (EBIT) fell slightly to $2.9 billion, this was in line with expectations, with its Bunnings and Officeworks businesses driving revenue.

The $55 billion company declared a final dividend of 77 cents per share and a special dividend of 18 cents per share (for the Coles sale), taking its total full-year payout to $1.52 a share. What’s important here is if you buy WES shares before August 25, you’ll be entitled to the 77 cent per share div payable on 1 October.

Looking ahead, like many companies, WES did not provide official guidance, however did warn that COVID-19 presents significant uncertainty for its operating environment.

A top 10 company on the ASX, Wesfarmers (ASX:WES), the owner of Bunnings, Kmart and Officeworks, reported its 2020 financial year results, here’s what you need to know.

The shift to working from home coupled with economic stimulus to households has put a firecracker under Bunnings’, Officeworks and Catch sales.

Now this saw Wesfarmers’ net profit after tax (NPAT) grow 8% to $2.1 billion, which was better than what the market was looking for.

But if you take out discontinued operations, i.e the Coles business which it spun off, then you’d see its profit fell 69% to $1.7 billion, now this was under what the market expected.

Wesfarmers’ revenue grew 11% to $30.8 billion, with online sales roaring up 60% due to COVID-19.

Its earnings, known as earnings before interest and tax (EBIT), that fell ever so slightly to $2.9 billion overall.

Now that was in line with expectations, with Bunnings and Officeworks businesses driving revenue.

On the flip side, Kmart earnings as well as its industrial and chemical firms saw earnings drag.

What’s key with this is Bunnings makes up the bulk of group earnings and Bunnings earnings grew 14% thanks to home renovations soaring to an all-time high.

The $55 billion company declared a final dividend of $0.77 per share and a special dividend of $0.18 per share for the sale of Coles, taking the total full year payout to $1.52 per share.

What’s important here is if you buy WES shares before the 25th of August, you’ll be entitled to the upcoming $0.77 per share div, payable on the 1st of October.

Looking ahead what to expect, well like many companies Wesfarmers didn’t give official guidance, however it did warn that COVID-19 represents significant uncertainty for its operating environment.

What this means is you could expect earnings to fall off their high base, particularly as stimulus unwinds early next year.

For this reason, we saw UBS downgrade earnings before interest and tax (EBIT) for next year to now $2.8 billion.

After today’s announcement, we saw WES shares scale to a new all-time high of $49.24.

WES is a Goldman Sachs and UBS hold with price targets ranging from $39.50 to $42.

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