Wesfarmers Limited

Wesfarmers reported net profit after tax of $1.6 billion, up 9.3%. Divisional earnings increased 6.8% overall. Bunnings sales grew 4% and earnings rose 5% to $1.39 billion, while Kmart Group earnings were $683 million, up 6.1%. WesCEF earnings increased 18.1% to $209 million, including $6 million from lithium. Officeworks sales rose 4.7% but earnings fell to $68 million, down $19 million, in line with prior guidance. Wesfarmers Health reported earnings of $38 million, including $7 million of amortization expenses; excluding amortization and prior-period restructuring costs, earnings increased 9.8%. Group operating cash flow decreased 3.3% to just under $2.5 billion, free cash flow increased 35.6% to $2.75 billion, gross capex was $619 million, and net capex was $311 million. Net financial debt increased to $4.9 billion after the $1.3 billion dividend distribution and a further $1.7 billion capital management initiative. For the 2026 financial year, net capex excluding BPI sale proceeds is expected to be between $1 billion and $1.3 billion. Management said the first 6 weeks of the second half showed Bunnings and Officeworks sales growth broadly in line with the first half, Kmart Group sales growth stronger than the first half, and WesCEF second-half earnings expected to be profitable and slightly above the first half.

Rob Scott framed the quarter as evidence that Wesfarmers’ portfolio can deliver growth and resilience at the same time, even with persistent inflation and cost-of-living pressure. He emphasized productivity, technology and AI as accelerants rather than a change in strategy, saying the company wants to execute existing plans faster and at lower cost while keeping customers and teams at the center. He was notably upbeat on the long-term potential of the group’s retail businesses, Health and Lithium, and said the balance sheet gives the company flexibility to keep investing.

Anthony Gianotti highlighted broad earnings growth across the group, with divisional earnings up 6.8%, and gave detailed division metrics: Bunnings sales up 4%, earnings up 5% to $1.39 billion; Kmart Group earnings up 6.1% to $683 million; WesCEF earnings up 18.1% to $209 million; Officeworks earnings down to $68 million with $15 million of one-off transformation costs in the half and $25 million more expected in the second half; and Health earnings of $38 million including $7 million of amortization expenses. He also pointed to solid cash conversion of 103%, operating cash flow just under $2.5 billion, free cash flow of $2.75 billion, gross capex of $619 million, net debt of $4.9 billion, average cost of funds declining from 3.8% to 3.6%, debt-to-EBITDA moving from 1.7x to 1.9x, and committed unused bank facilities of around $1.3 billion.

Analysts pressed on currency benefits, Kmart’s slower sales growth, Bunnings’ growth rate and margin leverage, Officeworks’ underperformance, and whether AI and transformation costs are an earnings headwind. Management said a stronger Australian dollar is helpful but flows through with a lag because of up to 18 months of hedging, and that pricing decisions will prioritize customer value, as shown by price cuts on just over 1,000 Kmart products. On Kmart, management said Target was hurt materially by the loss of the Queensland DC and by a later summer and heavy promotional activity, while Kmart’s value tiers and Anko ranges remained strong. On Officeworks, John Gualtieri said the business is mid-transition to a low-cost model with ERP replacement, restructuring and a new automated DC to improve competitiveness and long-term earnings growth.