Wesfarmers Limited

Income statement

Sources: 2026 AR (FY2025–FY2026 all lines; FY2022–FY2024 EBIT and NPAT from five-year charts). Note: a third-party data provider (InvestSMART) shows FY2023/FY2024 "earnings per share" of 218.8c/229.6c, differing from the basic EPS above — likely a different EPS definition; discrepancy flagged. The $2.00 capital return was paid in December 2021 (FY2022). Gross profit and EBITDA are not presented as Group totals in the documents reviewed. 0.5c of basic).

Significant items: FY2025 included $279m pre-tax ($273m post-tax): $233m gain on Coregas sale, $97m profit on BPI property wind-up, $51m Catch wind-down costs. FY2026 had none.

Margins and growth

Computed from table 6.1. Revenue CAGR FY2022–FY2026: 6.4% p.a.; NPAT (excl. significant items) CAGR: 5.1% p.a. FY2023 revenue growth reflects the first full year of Wesfarmers Health (API). FY2022 growth of 8.5% per Australian Shareholders' Association voting intentions report.

Balance sheet

Sources: 2026 AR; NTA FY2023–FY2024 from InvestSMART financials. Third-party book value per share data (InvestSMART: $7.30 FY2023, $7.57 FY2024, $8.10 FY2025) implies equity of roughly $8.3bn and $8.6bn for FY2023 and FY2024 respectively — indicative only.

Commentary: The FY2026 equity decline ($9.2bn → $8.0bn) and rise in net financial debt ($4.2bn → $5.3bn) are almost entirely explained by the $1,703m December 2025 capital management distribution. Gearing (net debt/equity) rose to 66.1% from 47.1%. The Group deliberately re-levered: S&P in July 2026 lifted its downside debt/EBITDA threshold to 3.0x from 2.75x, against a reported 1.9x, signalling material headroom for growth investment at the current A- rating.

Cash flow

Sources: 2026 AR; OCF per share FY2023–FY2024 from InvestSMART. No on-market buyback was undertaken in the period reviewed; DRP shares are acquired on market. Wesfarmers defines free cash flow after acquisitions and disposals, so FY2026 FCF includes Coregas proceeds and FY2022's low figure reflects the API acquisition.

Commentary: Operating cash flow fell 6.5% in FY2026 (cash realisation 91%) because of deliberate working-capital builds — higher spodumene inventory and pre-purchased fertiliser at WesCEF, and contingency inventory in Health — in response to Middle East supply disruption. Retail cash realisation remained 99%. Management guided FY2027 net capex up to $1.3–1.5bn (lithium expansion, store refurbishments, supply chain and Built Living) per Motley Fool reporting of the FY2026 results.

Ratios

ROE, ROC, gearing and debt/EBITDA per 2026 AR. ROA, asset turnover and interest cover computed: FY2026 total finance costs = lease interest $309m (EBIT $4,493m less EBIT after lease interest $4,184m) + other finance costs $167m; FY2025 = $255m + c. $157m.

Half-year progression FY2026

Source: 2026 Half-year Results (19 Feb 2026). 1H FY2026 revenue +3.1%, NPAT +9.3%. First-half sales growth: Bunnings 4.0%, Kmart Group 3.2%, Officeworks 4.7%. The shares fell 5.6% on result day amid high expectations.

Trend commentary

1. Inflection in earnings quality, not just quantity. FY2026 underlying NPAT growth of 8.3% was the fastest since FY2023, and it was achieved without significant items, with EBIT margin expanding for a third consecutive year (8.49% → 8.85%).

2. Lithium turned from drag to contributor. WesCEF lithium earnings swung from a $59m loss (FY2025) to a $40m profit (FY2026) on higher spodumene prices and Mt Holland outperformance (production of 209kt WesCEF share, above nameplate).

3. Officeworks is the visible soft spot. EBT fell 22.2% to $165m because of transformation costs (including $15m in 1H) as it moves to a low-cost operating model with offshore support functions in Bengaluru and Manila.

4. Health is improving from a very low base. Health EBT rose 18.8% to $76m but ROC of 4.2% remains far below Group hurdles, keeping it on management's "turnaround" list.

5. Balance-sheet re-levering is deliberate. The capital return lifted ROE to 35.5% and positioned the Group to fund a heavier FY2027 capex cycle.

Management guidance (FY2027)

• No numerical Group earnings guidance.

• Retail: early FY2027 sales growth positive at Bunnings (slightly above 2H FY2026's c. 4%), Kmart and Officeworks; persistent cost-of-doing-business inflation.

• Kmart Group: FY2027 described as a year of material investment (Plan C+ rollout, technology, Next Gen DC commissioning and dual-site costs from Oct 2026).

• WesCEF: Mt Holland production at c. 380kt nameplate (WesCEF share c. 190kt), about half sold externally; refinery production rates to accelerate through 2H FY2027.

• Health: continued earnings and returns improvement via transformation, focus on higher-margin Consumer business.

• Net capex c. $1.3–1.5bn (secondary reporting).

Consensus growth expectations

Pre-result, Macquarie forecast WesCEF EBIT rising to $656m by FY2028 (The Nightly, Jul 2026) and analysts expected FY2026 DPS of c. $2.20 (achieved $2.22).

Bull case

1. Compounding retail machine: Bunnings and Kmart together earn >$3.5bn EBT at c. 69% ROC, and both grew earnings faster than sales in FY2026 — evidence of operating leverage from productivity and AI.

2. New earnings streams independent of the consumer: lithium swung to a $40m profit at sub-nameplate refinery output; nameplate refinery operation plus a doubled mine (CY2030) could make WesCEF a materially larger earnings contributor.

3. Balance-sheet optionality: at 1.9x debt/EBITDA against a 3.0x rating threshold, Wesfarmers has multi-billion-dollar capacity for value-accretive M&A or further capital returns.

Bear case

1. Valuation: c. 35x trailing earnings for 8% underlying growth (and 3.4% revenue growth) prices in sustained excellence; the 5.6% fall on 1H FY2026 results shows sensitivity.

2. Execution stack in FY2027: simultaneous Kmart DC commissioning, Officeworks restructuring, Bunnings leadership change, Blackwoods integration, refinery odour remediation and Built Living start-up.

3. Macro and commodity exposure: rising interest rates, softening housing, persistent cost inflation, NZD weakness and lithium price volatility (lithium lost $59m only a year earlier).

Catalysts and monitorables (next 12 months)

Concluding analyst verdict

Wesfarmers enters FY2027 in better operational shape than its share-price volatility in 2026 might suggest. The FY2026 result was clean — no significant items, underlying NPAT up 8.3%, EBIT margin expanded for a third straight year, and free cash flow of almost $4bn — and it was delivered against an Australian backdrop of rising rates, weak sentiment and elevated input costs. The two businesses that matter most, Bunnings and Kmart Group, continue to post returns on capital that few retailers globally can match, and both are actively widening their addressable markets through marketplaces, commercial customers, new formats and agentic commerce.

The investment debate is therefore less about quality and more about price and execution. At roughly 35 times trailing earnings and a 2.5% yield, the market is already capitalising Wesfarmers as a premium compounder. Upside from here likely requires one or more of: (i) visible AI-driven productivity gains flowing into margins across the retail portfolio; (ii) the Kwinana refinery reaching sustained commercial production while lithium prices hold their 2026 recovery; (iii) Health lifting returns towards Group hurdles; or (iv) disciplined deployment of balance-sheet headroom into accretive transactions.

The near-term risk skew is shaped by an unusually crowded FY2027 execution agenda — leadership transitions at Board and Bunnings level, Blackwoods' integration into Bunnings, Kmart's distribution-centre commissioning, Officeworks' restructuring, refinery odour remediation, and a new housing venture. None is individually threatening, but collectively they raise the probability of an earnings miss against high expectations.

On balance, Wesfarmers remains a high-quality, conservatively financed core holding for long-horizon investors, with credible new growth vectors. However, the current valuation already discounts much of the good news; we would characterise the risk-reward as fair rather than compelling, favouring accumulation on macro-driven weakness (as in May 2026) rather than at present levels. This is analysis, not personal financial advice.

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Sources consulted (primary unless noted): Wesfarmers 2026 Annual Report incl. Appendix 4E (ASX, 27 Aug 2026); Wesfarmers 2026 Full-year Results and briefing presentation (27 Aug 2026); 2026 Half-year Results (19 Feb 2026); 2026 Strategy Briefing Day (10 Jun 2026); 2026 Notice of Meeting (4 Sep 2026); ASX announcements: Eurobond (4 Jun 2025), Industrial & Safety transition (2 Jun 2026), Cm3 sale (24 Jul 2026); Wesfarmers releases on OpenAI (28 Nov 2025), Google Cloud and Microsoft (13 Feb 2026); Bunnings media release on MD succession (27 Aug 2026); WesCEF release on LPG/LNG sale (30 May 2024); Covalent Lithium website; Wesfarmers credit ratings page. Secondary: S&P Global Commodity Insights (27 Aug 2026); Business News Australia; Motley Fool Australia; Rask Media; Capital Brief; ragtrader; iTnews; IT Brief; MLex; Gadens, Clayton Utz, Kennedys and Brightlaw case notes; The Lawyer magazine; Argus Media; Australian Mining; The Nightly; InvestSMART; MarketScreener; comdirect; Simply Wall St; Super Retail Group ASX release (30 Apr 2026).