Up 6% in October, is this factor why the Wesfarmers share price performed?

The Wesfarmers Ltd (ASX: WES) share price grew by 6.4% last month, marking a pleasing turnaround compared to many of the other months this year. That return compares to a 6% rise for the S&P/ASX 200 Index (ASX: XJO).

So, Wesfarmers managed to outperform the wider ASX share market last month, if only by a little bit. But, every bit of return counts, in my opinion.

What happened to boost the Wesfarmers share price?

Aside from the Reserve Bank of Australia (RBA) deciding to go with a slower interest rate increase in October, one of the most interesting things that happened relating to Wesfarmers was its annual general meeting (AGM).

Management pointed to how the business has been financially focused for decades, ensuring that it has remained disciplined through a range of economic conditions and minimised the danger of “empire building or paying too much for an asset” that it would have liked to own.

The business is expecting the challenges of strong inflation, rising interest rates, continuing skills shortages and supply chain bottlenecks “will likely continue for some time”.

Wesfarmers pointed out that it’s building climate resilience in its businesses, achieving a further reduction in emissions and making “good progress” towards its net-zero targets.

As an example, 50% of the entire Bunnings network is powered by renewable electricity, from a combination of its own solar panel generation and renewable energy contracts. All of its retail divisions are committed to sourcing 100% of electricity needs from renewable sources by 2025.

The investment in rooftop solar reduces its exposure to “expensive and volatile” energy costs, and reduces its operating costs. This can help the Wesfarmers share price if it boosts profitability.

Business progress

Wesfarmers noted that it has a few priorities, including developing a market-leading data and digital ecosystem, better connecting its retail brands with customers. This is aimed at improving the in-store experience and also supporting the growth and profitability of retail businesses over time.

It has launched the OneDigital division, which will include its subscription service, OnePass, its group asset called OneData, and the e-commerce marketplace called Catch.

It’s also making progress on achieving value from its investments in new platforms for growth, including decarbonisation (with the Mt Holland lithium project), and the growing demand in health and wellness (with its new Wesfarmers Health division, which includes Priceline). This sets up Wesfarmers “to benefit from these long-term megatrends”.

Each year, the production from the lithium hydroxide project will be equivalent to powering one million battery electric vehicles, resulting in an annual saving of around 1.8 million tonnes of emissions.

Bunnings continues to expand its commercial offering, with the acquisition of Beaumont Tiles and rollout of Tool Kit Depot.

I think all of these growth areas can help the Wesfarmers share price in the long term.

The company noted that elevated supply chain costs, rising wages and the higher cost of utilities, together with a lower Australian dollar, will impact its businesses in FY23.

In terms of a trading update, the company said retail trading conditions have remained “robust”, and management has been “pleased”.

Australian consumer demand continues to be supported by “low unemployment and high levels of accumulated household savings”. However, the impact of rising interest rates and inflation are “starting to affect consumer behaviour”, and households are starting to become more price sensitive.

Bunnings sales have been impacted by prolonged wet weather, but sales growth remains “resilient”.

Combined sales growth for Kmart and Target in FY23 to date continues to be “pleasing, with strong trading results even when adjusted for the impact of lockdowns”. Kmart is reportedly growing its market share profitably.

Officeworks sales are “broadly in line” with the prior year.

The post Up 6% in October, is this factor why the Wesfarmers share price performed? appeared first on The Motley Fool Australia.

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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 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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