Wesfarmers warms to pent-up demand

WESFARMERS boss Rob Scott, whose conglomerate is highly exposed to the retail sector, believes its businesses are in a good position to benefit from the return to normal trading as pandemic restrictions are eased.

But Mr Scott said lockdowns and store closures had significantly affected trading conditions for the group’s retail arms in recent months.

There was, however, early evidence that economies coming out of lockdowns were benefiting from elevated spending.

Pent up demand from consumers was starting to pour into Wesfarmers’s retail chains, such as hardware giant Bunnings, Officeworks and discount department stores Kmart and Target in NSW as lockdowns in that state ended last week.

Wesfarmers revealed on Thursday that sales declines experienced in the first eight weeks of the 2022 financial year had turned around, with sales growth returning to some of its retail business in recent weeks.

Mr Scott said that since August, when Wesfarmers delivered its fullyear results, there had been an improvement in sales for its key retail chain Bunnings as well as Officeworks and online marketplace Catch.

Results in Kmart and Target continued to be affected by temporary store closures, however.

“Lockdowns, government-mandated store closures and other restrictions have significantly impacted trading conditions for the group’s retail businesses in recent months,” Mr Scott said in his address to Wesfarmers’ AGM.

“There have been periods during which almost half of our retail stores

were either closed or restricted in some way. Overall sales growth remains impacted by these restrictions, but our businesses are well positioned for the resumption of normal trade as restrictions continue to ease.”

Kmart and Target had recorded a 14.3 per cent slide in sales in July and August, with that sales plunge worsened by the permanent closure of some stores. For Bunnings, which proved itself a huge sales driver through the first year of the pandemic, sales were down 4.7 per cent for the first seven weeks of 2022.

That poor performance now looks to have vastly improved.

“Trading performance in states and regions less impacted by restrictions has been resilient through the financial year to date,” Mr Scott said.

He said online sales had remained strong. “On a year-to-date basis, over half of Officeworks’ sales have been online,” he said. “And Kmart and Bunnings had online penetration of 21 and 6 per cent respectively.”

Mr Scott said the business was well prepared for the Christmas trading period. “Our retail businesses have been effective in managing the disruptions in global supply chains,” he said.

Turning to Wesfarmers’ recent takeover bid for pharmacy group Australian Pharmaceutical Industries, where the conglomerate has made an all-cash proposal to acquire it for $1.55 per share, Mr Scott said the company continued to progress the proposal with API.

“We remain of the view that Wesfarmers’ offer will deliver an attractive premium and certain cash return for API investors and benefit API’s community pharmacy partners,” he said.

There have been periods during which almost half of our stores were either closed or restricted in some way Rob Scott