Serious questions raised over Wesfarmers online losses and data capture as stock tank – channelnews

Serious questions are being raised about the future of Wesfarmers’ retail operations and their investments in online retail and data capture, with the company currently facing multiple headwinds in retail. detail.

Analysts say shareholders are also worried about the future of Catch, a company they acquired for $230 million in 2019. The company initially reported annual profit of $1 million for the fiscal year. 2020, before posting a loss of $46 million. in 2021.

Catch then reported a loss of $44 million in the first half of FY2022, with advice from consultants and executives involved with Catch, the company decided to take a strategic position in the data capture market digital, from OneDigital, a data and e-commerce division that is expected to post $180 million in losses in fiscal 2022 and 2023.

Barrenjoey analyst Tom Kierath recently told clients he was “struggling to understand the benefits” of Wesfarmers’ new $40 per year subscription service for OneDigital.

Like Kogan Wesfarmers, online businesses are suffering with revenue down 4.3% this year.

On the plus side, key strengths Officeworks has little competition and Bunnings retains a 50% market share of the home improvement and commercial vendor market.

The problem for Wesfarmers now is, with their share price down, down 7.4% in the past month.

Over the past 12 months, the stock has fallen 24%, with some analysts now citing Wesfarmers as a buy because the stock price is so low.

After falling nearly 25% year-to-date, the stock is closer than ever to the March lows seen during the COVID-19 crash of 2020.

The main cash generators for Wesfarmers are Bunnings, Kmart, Officeworks and Target with their discount retailers Kmart and Target struggling in a market affected by supply and inventory issues.

Recently, the group ventured into the healthcare sector with a $763 million acquisition of API pharmacy group, adding yet another retail division to the $49 billion business which is considered with JB Hi Fi as one of Australia’s best run retail groups employing 110,000 people. staff in Australia.

The problems for Wesfarmers came after they sold their stake in Coles In 2020, the company announced plans to close or convert 167 Target stores to Kmart’s, due to falling profits at their priced retail businesses. discounts that compete with Big W.

This, coupled with the loss-making Catch, is now weighing on the company.

Jamie Hannah, deputy head of investments at Wesfarmers, the Van Eck investor, told AFR this week “What you would hope for in any recovering economy is that there would be more spending in places like Bunnings as people do more home renovations,” he said.

“And on the other hand, if the economy slows down, that benefits Kmart, because it’s more discount stores, which are likely to see more spending.” Analysts agree with that assessment, with UBS’s Shaun Cousins ​​saying in early June that Bunnings and Kmart were well positioned in an inflationary environment.

In its half-year results in February, Bunnings posted a profit of $1.26 billion, or 70% of Wesfarmers’ total for the half.

Similarly, the hardware chain’s revenue was $9.2 billion, more than half of Wesfarmers’ $17.7 billion in revenue for the period.

For Hannah, overexposure to Bunnings is a concern, as well as Wesfarmers’ reliance on the Australian market.

“Geographically, Wesfarmers generates 95% of its revenue in Australia,” he said. “On that side of things for diversification, they’re overweight Australia and overweight Bunnings.”

Recently, Wesfarmers CEO Rob Scott said the company has yet to see a slowdown in consumer spending.

Several analysts are predicting rising interest rates and inflation could see significant price increases affect consumer spending, potentially squeezing profits from Wesfarmers’ retail operations.

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