Wesfarmers’ AGM update revealed a slowdown in sales in Bunnings and more cautious commentary on the retail backdrop. In the scheme of things, the slowdown should be mild and therefore the debate is more about the appropriate PE ratio than it is about earnings risks. For Bunnings, we expect sales growth to slow more so in 2H27e and 1H28e as the lagged effects of lower housing churn and lower house prices show through. Kmart has soft sales growth but currency gains to offset the pressure on earnings from cost growth and DC transition.

Wesfarmers reported EBIT growth of 7% in FY26. The company’s retail businesses had EBIT growth of 4%. Bunnings has so far shown resilient performance, but it is too early to see any downturn. Hardware sales are well correlated with mortgage refinancing, three months lagged. The downturn is imminent, around September 2026. We see same store sales slowing to 2% or so. Kmart will have low EBIT growth in FY27e as it upgrades its distribution centre. Wesfarmers will also have a step-up in interest costs of 17% in FY27e.

Wesfarmers 2026 strategy day had familiar messages about driving growth and productivity. What we found new was the emphasis about online marketplace growth, higher returns in Health and the confidence about its lithium expansion plan. We are cautious about slowing sales in Bunnings over the next 12 months.

Wesfarmers reported EBIT growth of 8% in 1H26. There was solid growth in its retail business and an outsized earnings improvement in lithium and associate income. The shape of the result raises debate about the likely operating leverage in Bunnings and Kmart, which we expect to be modest, especially as depreciation expenses normalise. We are also likely to see slowing sales trends on a 12-month horizon given weaker household income growth and fading price inflation. Wesfarmers will have solid EPS growth of 7% over FY26e and FY27e helped by higher lithium prices.

Wesfarmers reported EBIT growth of 8% in 1H26. There was solid growth in its retail business and an outsized earnings improvement in lithium and associate income. The shape of the result raises debate about the likely operating leverage in Bunnings and Kmart, which we expect to be modest, especially as depreciation expenses normalise. We are also likely to see slowing sales trends on a 12-month horizon given weaker household income growth and fading price inflation.

Sentiment around Wesfarmers has dropped away in the past month. This is the retail bellwether stock on the ASX and for the first time the share price fall has outstripped the consensus earnings downward revisions. Are perceptions shifting on Wesfarmers? Perhaps. But we still expect retail sales growth of 4% and EBIT growth of 5%. 

We have published our periodical chart pack of retailer performance vs market. See attached PDF.  This market share report provides two insights – 1) which retailers are winning and to what extent. 2) Insights about market structure.  If you would like any of the data in Excel at any point, just contact us.

Wesfarmers reported FY25 EBIT of $4,186 million, growth of 5%. The result was helped by higher equity profits and lower depreciation, so EBITDA growth of 3% is a better proxy of the performance in the year. Bunnings, Kmart and Officeworks outlook for earnings growth is modest with limited margin expansion likely as depreciation rises and cost savings are largely offset by cost inflation. We expect WesCEF EBIT to fall 15% in FY26e given larger losses for lithium and lower ammonia prices.

Wesfarmers’ strategy sets an expectation for high-single digit earnings growth. However, the reality will still be some way off given growing losses in lithium. There is little room for any competitive risk to Bunnings or Kmart and a lot priced in for growth from these businesses that account for over 85% of enterprise value. Wesfarmers’ strategy continues to shift towards a focus on organic growth. There are opportunities in new product categories for Bunnings and Officeworks, retail media, online marketplaces and production expansion for WesCEF. The message around acquisitions was intriguing – plenty of desire, few viable options.

We have published our periodical chart pack of retailer performance vs market. See attached PDF.  This market share report provides two insights – 1) which retailers are winning and to what extent. 2) Insights about market structure.  If you would like any of the data in Excel at any point, just contact us.