Own Wesfarmers shares? Here’s where the health business is heading

A smiling woman applies face cream to her cheeks while looking in a mirror.A smiling woman applies face cream to her cheeks while looking in a mirror.

The Wesfarmers Ltd (ASX: WES) share price is having a terrible day, down 4% in afternoon trading to $43.33.

There’s been no market-sensitive news issued by the diversified conglomerate today.

However, according to an article in the Australian Financial Review (AFR), Wesfarmers has been busy with a bunch of changes to the businesses in its new health segment following the purchase of Australian Pharmaceutical Industries (API).

Wesfarmers bought API in a takeover deal finalised in March. The acquisition brought retail chains including Priceline Pharmacy, Pharmacist Advice, and Clear Skincare into the Wesfarmers portfolio.

Best known for owning Bunnings, Kmart, and Officeworks, the purchase represents Wesfarmers’ first foray into the healthcare, beauty, and wellness space.

What will API do to the Wesfarmers share price?

Emily Amos is managing director of Wesfarmers’ health segment. She was appointed in April shortly after the takeover was concluded.

Amos has done an interview with AFR outlining some of her first priorities.

According to the article, one of them is leveraging API’s loyalty program to boost sales. It’s the fourth largest of its kind in terms of market penetration in Australia.

Called Sister Club, the loyalty program has 7.5 million members. Amos wants to use it to increase sales, expand product ranges, and improve marketing.

She also wants to expand the network of Clear Skincare clinics, which offers anti-ageing, acne and laser treatments. There are currently 96 clinics across Australia and New Zealand. Amos wants to add 30 more.

Amos told AFR: “It’s a good margin business, so it’s really about operational execution and discipline.”

The former API wholesale drug business recorded $3 billion in sales in fiscal year 2021 but with low margins.

Amos reckons she can improve things by making the distribution centre in Sydney’s Marsden Park more efficient. She sees automation as the way to go and expects gains from the second half of this year, according to the article.

Bringing a new business into the fold involves many costs but also many potential rewards.

In Wesfarmers’ FY22 full-year results, the health division recorded $1,240 million in revenue. But this trickled down to a $25 million loss in earnings before tax (EBT).

Of course, this is only over the three months that Wesfarmers owned its new health assets.

The picture changes if you take out $36 billion in acquisition-related and one-off expenses. In that scenario, earnings for the three-month period were $11 million.

Over this three-month timeframe, the Wesfarmers share price went down by 15%.

The post Own Wesfarmers shares? Here’s where the health business is heading appeared first on The Motley Fool Australia.

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Motley Fool contributor Bronwyn Allen has positions in Wesfarmers Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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