Australian Wesfarmers' annual profit falls

Australian conglomerate Wesfarmers Ltd., owner of the country's No. 1 hardware chain, reported a drop in annual profit and warned of "challenging" inflation, but said raw material prices were falling and demand for home improvement projects was high.

The outlook released on Friday shows a company transitioning from one extraordinary challenge to another: Its products were in high demand during COVID-19 lockdowns but trade was disrupted, while now consumer confidence has waned amid rising material costs and rising cost of living pressures. Wesfarmers' net profit for the year ended June fell 2.9% to A$2.35 billion ($1.64 billion), beating analysts' estimates of about A$2.2 billion, due to pandemic store closures and restrictions in the first half. Its main source of revenue, the Bunnings hardware chain, boosted profit contribution by 0.9%. https://twitter.com/newszf_com/status/1562997069371289600 But Australia ended curfews in late 2021 and overall profit in the January-June period rose 13% as shoppers returned to the company's stores, including local versions of Kmart and Target (NYSE:TGT) outlets. Bunnings, an institution in Australian retailing, said it increased sales in the first seven weeks of its fiscal year that began in July, but did not give more detailed profit expectations. "The nature of the products at Bunnings are not all discretionary. There is a lot of repair and maintenance expenditure," Chief Executive Rob Scott said in a telephone interview with reporters. Wesfarmers had previously reported that it was exposed to skyrocketing timber prices due to a surge in global demand, but Scott said the cost of timber and other raw materials such as cotton and plastic resin had moderated. "These reductions in the prices of some raw materials will eventually start to trickle down to consumers over the next six to nine months... but I suspect inflation will be challenged over the next few months," Scott said. The cost-of-living pressure also appeared to benefit department store chain Kmart, which makes about a third of Bunnings' profits. Shares in Wesfarmers rose 1.7% in morning trading as analysts raised their estimates in line with the company's upbeat outlook. The Sydney benchmark index was 1% higher. Wesfarmers "will continue to benefit from its scale and sourcing capabilities to manage inflation," UBS analysts wrote in a research note. Ord Minnett analysts wrote that they expect investors to raise their forecasts for Wesfarmers, but that "this may be partially offset by lower Bunnings margins and higher interest costs."   Follow Global Economic Developments on Social Media! Click here to follow Ieconomy official Facebook account! Click here to follow Ieconomy official Instagram account! Click here to follow Ieconomy official Twitter account!