Why did the Wesfarmers share price flop in February?

An older woman with grey hair and wearing glasses looks at her laptop screen with her hand outstretched to demonstrate that she doesn't understand what she is reading

An older woman with grey hair and wearing glasses looks at her laptop screen with her hand outstretched to demonstrate that she doesn't understand what she is readingThe Wesfarmers Ltd (ASX: WES) share price has gone down 2.8% in February with less than two hours of trading left for the month. Significantly, it’s down 6% since 16 February 2023.

For many businesses on the ASX, February is reporting month. That means investors get to see what’s happening within businesses and it also gives management a chance to comment on how 2023 is looking for their respective companies

Wesfarmers, the owner of Bunnings, Kmart, Officeworks, and Priceline, revealed a set of numbers in the company’s FY23 half-year result that was solid, though not earth-shattering.

Earnings recap

Wesfarmers reported that revenue increased by 27%, partly thanks to its acquisition of Australian Pharmaceutical Industries (API) which owned the brands Priceline, Soul Pattinson Chemists, and Clear Skincare Clinics.

However, excluding the acquisition, Wesfarmers Health revenue only increased by 11.4%. It also reported that total earnings before interest and tax (EBIT) went up 13.4%, while earnings per share (EPS) grew 14% to $1.223.

Operating cash flow increased 26.7% to $1.97 billion, while the company’s interim dividend increased 10% to 88 cents per share.

Bunnings managed a 1.5% increase in earnings before tax (EBT) to $1.28 billion. There were two key growth standouts. Kmart Group EBT jumped 114% to $475 million, partly thanks to stores being open again after COVID restrictions. Wesfarmers chemicals, energy, and fertilisers (WesCEF) EBT jumped 48.6% with strong demand for commodities, leading to good prices for WesCEF.

Did the outlook affect the Wesfarmers share price?

Wesfarmers is one of Australia’s leading retailers, so impacts on the wider economy can inevitably affect the ASX share.

In early February 2023, the Reserve Bank of Australia (RBA) decided to increase the interest rate by another 25 basis points to 3.35%. Less money for households to spend could have an impact on demand for the company’s items. The RBA’s priority is to “return inflation to target”, which is in the range of 2% to 3%.

It may be that unless businesses like Wesfarmers see a bit of pain, the RBA will need to keep going.

However, Wesfarmers had some positive words about that situation:

Elevated inflation and higher interest rates are expected to impact demand in parts of the Australian economy and result in households continuing to become more value conscious. In this environment, the strong value credentials and low-cost operating models across the group’s retail businesses mean they are well positioned to meet changing customer demand as customers adjust to cost pressures.

Retail trading results in the first five weeks of the second half of FY23 have been “broadly in line” with the growth reported for the first half.

However, Wesfarmers also said that elevated cost of doing business pressures in Australia and New Zealand are expected “to persist” in the second half, including labour market constraints and costs in the supply chain.

Wesfarmers share price snapshot

Whilst February wasn’t a great month for the business, the Wesfarmers share price is still up more than 6% in 2023 to date.

The post Why did the Wesfarmers share price flop in February? appeared first on The Motley Fool Australia.

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More reading

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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. 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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