For Australian investors who have been holding onto Wesfarmers Ltd (ASX: WES) shares for the long haul, the current returns are undoubtedly a source of satisfaction. Furthermore, the belief persists that acquiring shares today could pave the way for robust long-term performance.
The prominent ASX retail entity experienced a notable dip yesterday, shedding over 5% following the release of its interim financial results for the first half of FY26. While individual shareholders may have had diverse motivations for divesting, several positive indicators within the report have fuelled optimism regarding the company’s future prospects. Wesfarmers, a conglomerate that boasts ownership of household names like Kmart, Bunnings, Officeworks, Priceline, and WesCEF, among others, appears well-positioned for continued success.
Solid Earnings Amidst Economic Headwinds
The headline figures from Wesfarmers’ latest report clearly demonstrate the company’s capacity to achieve growth despite the economic challenges impacting some of its customer base.
Wesfarmers announced a 3.1% increase in revenue, reaching $24.2 billion. Operating profit, or Earnings Before Interest and Tax (EBIT), saw an 8.4% rise to $2.5 billion. Net profit climbed by 9.3% to $1.6 billion, and earnings per share (EPS) also experienced a 9.3% increase.
While these growth figures might not represent the most substantial numbers reported during this earnings season, it’s crucial to acknowledge Wesfarmers’ consistent, steady growth trajectory since the early 2020s. These profit figures reflect a pattern of compounding gains year after year. The company’s ability to deliver close to double-digit profit growth, particularly in an era of challenging retail environments and given its already substantial size, is a testament to its operational strength in selling physical products.
Stellar Performance from Core Businesses
A significant portion of Wesfarmers’ revenue and earnings is derived from its two flagship businesses: Bunnings Group and Kmart Group.
In the first half of FY26, Bunnings Group’s revenue grew by 4% to $10.7 billion, and Kmart Group’s revenue increased by 3.2% to $6.4 billion. In terms of profitability, Bunnings Group delivered a 5% growth in earnings, reaching $1.39 billion, while Kmart Group achieved a 6.1% growth, totalling $683 million.
The revenue growth generated by these businesses is particularly impactful for Wesfarmers due to the exceptionally high returns they consistently deliver. In the first half of FY26, Bunnings Group recorded a remarkable return on capital (ROC) of 70.8%, and Kmart Group achieved a comparable ROC of 69.8%. These elevated ROC figures strongly suggest Wesfarmers’ ongoing ability to unlock substantial and profitable growth for its shareholders.
This high ROC directly translates into a compelling return on equity (ROE) for the overall Wesfarmers business. The ROE, excluding significant items, saw an increase of 1.5 percentage points, reaching 32.7%. This is a robust indicator across multiple fronts, signifying that Wesfarmers is becoming more efficient in generating profits from shareholder capital retained within the business, as opposed to solely relying on dividend payouts. The continued strength of Kmart and Bunnings indicates they are well-positioned for sustained growth in the years ahead.
Significant Growth Potential on the Horizon
Given Wesfarmers’ considerable scale, rapid, explosive growth in revenue or profits might not be anticipated. However, the company has strategically implemented several compelling initiatives designed to boost earnings.
One such initiative is the ongoing expansion of its Anko store network in the Philippines. During the first half of FY26, three new Anko stores were successfully launched. There is considerable optimism that the Anko brand will extend its reach into other Asian and non-Asian markets in the coming years.
Kmart has also ventured into the digital space with the launch of a third-party marketplace. This move has already shown “positive early trading results” and serves to broaden the company’s total addressable market.
Bunnings continues to enhance its product offerings, with a recent strategic focus on expanding its range in vehicle products and pet care. The company is also actively targeting online sales and the trade customer segment as key growth avenues.
Beyond its retail powerhouses, Wesfarmers’ healthcare and lithium segments also presented a positive outlook in the first half of FY26, with both experiencing growth. Lithium prices have seen a notable surge in recent months, which bodes well for future profitability. The healthcare sector, meanwhile, remains a vast market with significant underlying growth drivers. It is anticipated that Wesfarmers will pursue further expansion within its healthcare division in the coming years.
Collectively, these developments provide ample evidence that Wesfarmers is well-equipped to continue compounding its earnings over the long term. This outlook does not even factor in the positive trading update for the second half of FY26, which highlighted accelerating sales growth at Kmart Group.
A Rising Dividend for Income-Focused Investors
For investors who value passive income, the increase in Wesfarmers’ dividend payout was a particularly welcome development. The dividend per share rose by 7.4% to $1.02.
Dividends are expected to play a crucial role in Wesfarmers’ overall shareholder returns in the coming years. The company’s approach of balancing cash distributions to shareholders with strategic investments for growth and the delivery of earnings growth is highly commendable.
Considering these factors, the current share price of Wesfarmers may represent an opportune moment for long-term investment.
