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Serious Questions Raised About Wesfarmers Online & Data Capture Losses As Shares Tank

Serious questions are being raised as to the future of Wesfarmers retail operations and their investments in online retailing and data capture with the business currently facing multiple retail headwinds.

There are also concerns among shareholders according to analysts, as to the future for Catch a business they acquired for $230 million in 2019. The business initially reported a full-year profit of $1 million for the 2020 financial year, before posting a $46 million loss in 2021.

Catch then reported a $44 million loss in the first half of fiscal 2022, driven by advice from consultants and executives involved in Catch the business moved to take a strategic position in the digital data capture market, of OneDigital a data and e-commerce division that is set to post $180 million in losses in the 2022 and 2023 financial years.

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

Like Kogan Wesfarmers online businesses are suffering with revenues falling 4.3% this year.

On the up side key assets Officeworks has little competition and Bunnings is holding onto a 50 per cent market share of the home renovation and trade supplier market.

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

During the past 12 months the stock has fallen 24% with some analysts now tipping Wesfarmers as a buy because the share price is so low.

After falling almost 25% since the beginning of the year the stock is closer than ever to the March lows seen in the COVID-19 crash of 2020.

Key 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 moved into the healthcare business with a $763M acquisition of pharmacy group API, adding yet another retail division to the $49-billion business that is seen along with JB Hi Fi as being one of the best run retail groups in Australia employing 110,000 staff in Australia.

The problems for Wesfarmers came after they sold down their shareholding in Coles In 2020, the company announced plans to shut or convert 167 Target stores to Kmart’s, due to a slump in profits across their discount retailing businesses that compete with Big W.

This coupled with the loss-making Catch is now taking a toll on the business.

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

“And on the flip side, if the economy does slow, this benefits Kmart, as they are more discount stores, which will likely see more spending.” Analysts agree with this assessment, with UBS’ Shaun Cousins saying in early June Bunnings and Kmart were well-placed in an inflationary environment.

At its half-year results in February, Bunnings recorded $1.26 billion in earnings, comprising 70 per cent of Wesfarmers’ total for the half.

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

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

“Geographically, Wesfarmers is producing 95 per cent of its revenue inside Australia,” he said. “From that side of things for diversification, they are overweight Australia and overweight Bunnings.”

Recently Wesfarmers CEO Rob Scott said the company has not yet seen a slowdown in consumer spending.

Several analysts are tipping rising interest rates and inflation could see significant price rises causing a hit on consumer spending, potentially cutting into profits at Wesfarmers retail operations.

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