Wesfarmers Surges After Plan to Pay Investors $1 Billion

Wesfarmers Ltd., Asia’s largest retailer by market value, rose the most in two years in Sydney trading after promising shareholders A$1.1 billion ($1 billion) and reporting a jump in sales at its Bunnings hardware chain.

Wesfarmers will pay investors A$1 per share as a one-time capital return, the Perth-based company said today while announcing a 19 percent increase in full-year profit to A$2.69 billion. The shares climbed 3.8 percent, the most since August 2012, to A$45.66 at the close in Sydney.

Sales at Bunnings and Coles supermarkets, which account for about three-quarters of Wesfarmers’ annual revenue, are helping the company ride out writedowns and money set aside for restructuring at its liquor and department store networks, as well as weakness in its coal and chemicals units as Australia’s mining boom slows. Revenue from Bunnings stores open at least 12 months rose 10 percent in the three months ended June, the chain’s fastest growth since at least March 2010.

“Underlying demand growth remains strong,” Grant Saligari, an analyst at Credit Suisse Group AG in Melbourne who rates the stock neutral, said by phone. “The food retail market remains quite rational and that supports profit growth.”

Wesfarmers has been navigating weak consumer sentiment driven by jobless rates at a 12-year high even as central bank rates are at a record low. Consumer confidence has been negative for six consecutive months, rising to its highest level since April this month.

Less Pessimism

Pessimism appears to be lessening and sales weakness in the fourth quarter of Wesfarmers’ fiscal year may have had as much to do with the unseasonably warm weather as negativity associated with Australia’s budget proposal in May, Managing Director Richard Goyder said on a post-earnings conference call.

“Retail sales in recent weeks have been stronger than they were a few months ago,” Goyder said. The company wasn’t seeing “any indications that the economy is on the slide; in fact we’re seeing some positive signs.”

Full-year revenue was A$62.3 billion, up 4.2 percent from a year earlier, while earnings before interest and tax fell 16 percent to A$2.89 billion after excluding A$1.26 billion of Ebit from units that were sold during the year.

Coles Sales

At Coles supermarkets, full-year sales gained about 4.5 percent to A$37.4 billion, and climbed 4.1 percent in the fourth quarter in food and liquor stores open at least 12 months. That was the fastest pace of growth since the same quarter last year, according to data compiled by Bloomberg.

“The Coles turnaround has more growth than previously expected,” Shaun Cousins, an analyst at JPMorgan Chase & Co. in Sydney, wrote in a note to clients last month. Australia’s consumers are showing “increasing confidence,” he wrote, improving the outlook for the country’s retail industry.

Full-year group Ebit rose 8.3 percent at the Bunnings hardware chain and climbed 6.4 percent at the Kmart discount department store. Ebit declined 37 percent at the mid-range Target chain.

By comparison, Masters Home Improvement, a venture of Woolworths Ltd. and Lowe’s Cos. and a competitor to Bunnings, forecast Aug. 12 that it wouldn’t make a profit until at least 2017 after its annual losses widened by 24 percent.

“Construction activity is picking up and interest rates are expected to stay low which will be a major boost” for Bunnings, Peter Esho, managing partner at wealth management firm 100 Doors, said by phone from Sydney. “It’s a clean set of numbers and there’s a lot of confidence there.”

Cash Payout

The cash return to shareholders -- Wesfarmers’ second in 12 months -- shows the dearth of investment opportunities seen by the company, which carried out Australia’s biggest takeover with its A$18 billion acquisition of Coles Group Ltd. in 2007.

The value of the latest distribution is just ahead of the one-time gain of A$1.04 billion Wesfarmers received from selling off its insurance businesses.

The company spent A$2.75 billion on dividends and the previous capital return during the year, more than double its A$1.22 billion in net capital spending over the period, according to its accounts.

Australian businesses are “less focused on implementing plans for growth,” Reserve Bank of Australia governor Glenn Stevens said in a statement today. The country’s economy needs “animal spirits” above all, something that the central bank can’t directly influence, he said.

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