The Bunnings cash machine delivers bigger Wesfarmers payout but Rob Scott warns of consumer uncertainty

Wesfarmers boss Rob Scott says he expects the recent call by the Reserve Bank to hike interest rates and uncertainty over the prospects of higher-for-longer inflation will rattle consumer sentiment.

But a focus on cost controls and low price across its massive retail portfolio positions the WA conglomerate — which owns Bunnings, Kmart, Target and Officeworks — well to keep the cash-generation machine rolling on.

“Wesfarmers recognises the impact of inflation on households and businesses, and the retail divisions play an important role in the community through offering everyday low prices,” Mr Scott said.

“Bunnings and Kmart’s well-established everyday low price operating models deliver sustainable growth in earnings through a relentless focus on productivity and low prices.

“Australian consumer demand remains solid, but cost of living pressures are being felt unevenly across the economy and impacting many households.

“The recent interest rate rise and uncertainty regarding the outlook for inflation and interest rates are affecting consumer sentiment, while higher operating expenses are weighing on business confidence and spending.”

Releasing its half-year results on Thursday, Bunnings once again proved an unstoppable earnings force for Wesfarmers, bucking any signs of consumer slowdown to grow revenue 4.2 per cent to $10.7 billion for the half year.

The big green sheds made up the lion’s share of its overall revenue of $24.2b for the six months to the end of December — up 3.1 per cent on the same time a year ago.

Post-tax profit rocketed 9.3 per cent to $1.6b, allowing Wesfarmers to hike its interim fully franked dividend to $1.02 a share — up from 95c this time last year.

Earning before interest and tax for the half were up 8.4 per cent to $2.5b.

Mr Scott said the profit result was supported by strong earnings contributions from its largest divisions — Bunnings, Kmart Group and WesCEF.

“During the half, Wesfarmers’ divisions benefited from productivity initiatives to navigate ongoing challenging market conditions,” he said.

“Despite a modest improvement in consumer demand, higher costs continued to weigh on many households and businesses, and residential construction activity remained subdued.

“The divisions performed well, driving productivity to mitigate cost pressures and keep prices low for customers.

“Bunnings demonstrated the strength of its offer, with higher sales across all product categories, operating regions and in both consumer and commercial segments.”

Kmart improved its revenue growth 3.3 per cent to bring in $6.3b while Wesfarmers’ shift into health — which includes Australian Pharmaceuticals Industries, The Silk Group and the Priceline and Soul Pattinson pharmacies — is paying dividend, with revenue up 8.4 per cent to $3.3b.

More to come.