Wesfarmers (ASX:WES) share price higher despite guiding to first half profit decline

Key points

• Wesfarmers’ Kmart Group had a poor half and expects to report the more the halving of its earnings.
• Bunnings and its chemicals businesses have performed well and offset some of this weakness
• Wesfarmers expects its half year profit to be down 12.5% to 16.5%

The Wesfarmers Ltd (ASX: WES) share price is pushing higher on Monday morning.

In early trade, the conglomerate’s shares are up almost 2% to $54.95.

Why is the Wesfarmers share price rising?

The Wesfarmers share price is pushing higher today following the release of an update on its performance during the first half. While the update reveals that the company has had a difficult period, it was still broadly in line with what the market was expecting.

According to the release, for the six months ended 31 December, Wesfarmers expects to deliver a net profit after tax result in line with current consensus expectations at between $1,180 and $1,240 million. This represents a decline of 12.5% to 16.5% over the prior corresponding period’s net profit after tax of $1,414 million.

Management advised that this result reflects pleasing results from its Bunnings and Wesfarmers Chemicals, Energy & Fertilisers business, which partially offset weak results from Kmart Group and Officeworks. The latter businesses were impacted by COVID-related disruptions and costs.

Kmart Group disappoints

The main drag on the company’s performance during the first half was its Kmart Group business.

This was due to a 10.3% decline in Kmart and Target sales and just 1% sales growth from its Catch business. The latter could have consequences for the Kogan.com Ltd (ASX: KGN) share price today.

Management explained that Kmart and Target were significantly impacted by COVID-19 restrictions, with almost 25% of store trading days lost due to government-mandated closures. This led to combined half year earnings before tax (EBT) for Kmart and Target falling to between $215 million and $223 million. Things were even worse for the Catch business, which is expecting to post a loss of between $45 million and $43 million for the half.

As a result, the Kmart Group business is expected to see its first half EBT more than halve to between $170 million and $180 million from $487 million a year earlier.

In respect to current trading, management advised that conditions remain tough due to rising Omicron cases. It explained that retail trading conditions weakened in the last two weeks of the 2021 and customer traffic to stores has remained subdued during the first half of January.

Further details will be provided to the market next month with the release of its audited half year results.

The post Wesfarmers (ASX:WES) share price higher despite guiding to first half profit decline appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro 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 owns and has recommended Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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