Wesfarmers shares take off as bargain hunting sees Kmart earnings add 110%

Happy shopper at a clothes shop.Happy shopper at a clothes shop.

The Wesfarmers Ltd (ASX: WES) share price is rocketing on Wednesday on the release of the company’s first-half profit report. And profit it did. The company posted a 1.4 billion post-tax profit for the six months ended 31 December, as The Motley Fool Australia reported earlier.

Much of that was due to Kmart’s earnings, which more than doubled year-on-year as customers looked for the lowest prices – a trend the company predicts to continue amid soaring inflation and rising interest rates.

But not all are so hopeful of the S&P/ASX 200 Index (ASX: XJO) retail-focused conglomerate.

Right now, the Wesfarmers share price is $50.03, 2.73% higher than its previous close.

Wesfarmers share price soars on Kmart win

Wesfarmers’ iconic business Kmart Group, housing both Kmart and Target, posted $475 million of earnings in the first half. That’s a 114% jump on those of the previous comparable period.

On top of the cycling of past lockdowns, Kmart’s win likely had a lot to do with customers’ positive response to its “lowest price positioning”, the company highlights.  

And that’s been tipped to continue. The company expects the increasing cost of living to send more shoppers through the discount department store’s doors.

It wasn’t a trend seen at Bunnings, however. The hardware retailer posted a 1.5% lift in earnings, which came in at around $1.3 billion.

There was also news of Wesfarmers Chemicals, Energy, and Fertilisers (WesCEF) and its Mt Holland lithium project. The business posted a notable 48.6% jump in earnings. However, it also revealed the project’s costs have risen.

Wesfarmers now expects to fork out between $1.2 billion and $1.3 billion to develop Mt Holland. That’s a jump of around 10% to 20% from previous estimates. Meanwhile, lithium hydroxide likely won’t be produced until early 2025 – six months later than previously expected.

Experts respond to the ASX 200 giant’s results

In its initial response, Goldman Sachs warns impacts from slowing housing activity and continued rate hikes could lessen demand at Bunnings – a happening it can “clearly see early evidence of”.

Additionally, while the company is bullish on commodities capable of bolstering WesCEF’s earnings once more this half, Goldman Sachs says ammonia nitrate prices are beginning to soften.

The broker reiterated its sell rating on Wesfarmers shares this morning. It’s kept its price target at $42.20 – a potential 15% downside.

Meanwhile, VanEck has reportedly labelled the company’s earnings a once-off, at least for now.

Russel Chesler, head of investments and capital markets, said sales at its retail brands could fall as rates increase amid inflation, The Australian reports. Chesler was quoted as saying:

We think investors should be very wary of consumer discretionary stocks with widespread weakness on the not-so-distant horizon.

The post Wesfarmers shares take off as bargain hunting sees Kmart earnings add 110% appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has positions in and has recommended Wesfarmers. 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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