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S&P Delivers Positive Report For Wesfarmers Retail Stores

Following on from Wesfarmers’ strong earnings report for FY20, credit ratings agency S&P Global Ratings has announced that it believes the group will post sales growth in FY21, largely thanks to their ability to continue retail trading amid COVID-19 restrictions.

“We believe Wesfarmers’ ability to benefit from significant increases in consumer spending on home improvement projects and work-from-home needs will continue to support group sales growth in the year ending June 30, 2021,” S&P Global Ratings stated.

However, the agency does expect that the Target businesses will weigh on the group’s broader trading outlook.

While transactions at Bunnings and Officeworks jumped by roughly 13% in H2 FY20, Target’s sales fell by 2.6%.

S&P pointed out that Wesfarmers has been able to offset the fall in foot traffic well by supporting its online channels, though there have been added costs associated with the COVID-19 pandemic.

“The broader Kmart Group experienced a boost in online sales. Despite this, online fulfilment, fixed occupancy costs, and the level of clearance activity within the industry contributed to a deterioration in EBITDA margins during fiscal 2020,” S&P stated.

The ‘Kmart Group’ includes Kmart, Target, and Catch.

Looking ahead, S&P expects the Stage 4 restriction in Victoria to dampen in-store trading at Wesfarmers’ 129 stores in Melbourne.

“Despite the group’s retail businesses being able to continue online operations through home delivery and ‘click and collect’ channels, we believe the temporary in-store trading restrictions and corresponding staff wage support will dampen earnings in the first half of fiscal 2021,” S&P stated.

Wesfarmers’ share price hit a record high of $49.42 yesterday.

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