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Date : 27/08/2021

Wesfarmers Share Price Dropped On ASX Despite Huge Capital Returns

Wesfarmers Ltd (ASX: WES) is engaged in various business operations, such as supermarkets, liquor, hotels, and convenience stores; home improvement; office supplies, and an industrials division with businesses in chemicals, energy and fertilizers, industrial and safety products, and coal. The Company’s segments include Home Improvement; Department Stores; Office Works; Industrials, which includes Resources, WIS and WesCEF, and Other. Bunnings is a retailer of home improvement and outdoor living products in Australia and New Zealand. Kmart is a retailer with approximately 210 stores throughout Australia and New Zealand. Target operates a network of over 300 stores and sells a range of products for the contemporary family, including apparel, homewares, and general merchandise. Officeworks is a retailer and supplier of office products and solutions for home, business, and education. The Company also holds an interest in the Mt Holland lithium project based in Western Australia.

Why is Wesfarmers Share Price trading low despite positive results?

This morning, WES shares dipped by over 2% as the company announced their financial performance for FY21. Wesfarmers managed to increase their revenue by 10% to $33.9 billion. EBITDA increased by a massive 18.8% to $3.3 billion. In the last line item, WES reported a statutory net profit after tax (NPAT) of $2.3 billion for the full-year ended 30 June 2021. NPAT from continuing operations, excluding significant items, increased 16.2% to $2.4 billion.

The Group recorded a solid operating cash flow result for the year. Operating cash flows of $3.3 billion were 25.6% lower than the prior year, with strong earnings growth offset by a normalisation in working capital positions across the retail businesses following the lower inventory and higher payables balances recorded at the end of the 2020 financial year as a result of elevated demand. Wesfarmers maintained significant balance sheet flexibility during the year to support continued investment across the Group while addressing ongoing uncertainty. The Group recorded a net cash position of $109 million at the end of the year.

With the strong NPAT that was reported, WES announced a 90 cents per share dividend payout to shareholders. The final dividend brings total fully-franked ordinary dividends for the full year to 178 cents per share.

In addition to the final ordinary dividend, the directors are recommending a return of capital of 200 cents per share, representing a $2,268 million distribution. The recommended distribution is subject to shareholder approval at the 2021 Annual General Meeting (AGM) on 21 October 2021. This distribution will enable a more efficient capital structure while maintaining balance sheet capacity to take advantage of value-accretive opportunities as they arise.

Wesfarmers Managing Director Rob Scott said that the strong financial result for the 2021 financial year is a testament to the dedication of team members and leaders across the Group, who continued to find new and valuable ways to meet customers’ needs and support the community during a period of significant disruption.

WES however did warn that retail divisions have been impacted by the pandemic’s restrictions Not only are sales down, but the company is experiencing COVID-19 costs, including higher picking and fulfilment costs to meet the needs of customers in affected areas. This looks to be the main reason why WES shares were seen falling today as the growth in the retail space has started to slow down.

WES shares however remain a fantastic proposition for long-term investors given the stability of their operations and the sheer size of the business. WES shares $62.20 a share today.

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