Why Wesfarmers Ltd Shares Scooted Higher Today

What happened to Wesfarmers shares?

Shares of Wesfarmers Ltd [ASX:WES] gained more than 1.2% today as investors look for a rebound in the company’s performance, especially in key business such as Bunnings Warehouse.

Why did the WES share price rise?

Wesfarmers is in an ongoing ‘retail battle’ with competitor Woolworths Ltd [ASX:WOW], and discount food retail chains such as Aldi. For the past couple of years, Wesfarmers’ Coles supermarket chain has appeared to get the better of Woolworths, as Woolworths has spent much of that time dealing with the disastrous consequences of the Masters hardware stores.

That said, Wesfarmers may now face its own challenges, as it rolls out the Bunnings Warehouse chain into the UK. Historically, the UK market has been tough to crack for Aussie retailers, as has the Aussie market for UK retailers.

The Bunnings Warehouse model will be different for the UK market, where hardware stores tend to be smaller, and have less of a focus on providing cheaper and discounted products. If the Bunnings Warehouse experiment works for Wesfarmers, it could be a strong source of revenue.

If it doesn’t, Wesfarmers could find itself in the same position as Woolworths, trying to get out of a terrible business decision.

What now for Wesfarmers Ltd?

The Wesfarmers share price has barely changed from where it was one year ago. In fact, it has barely changed from where it was four years ago, after the 2012 rally that saw all dividend paying stocks rise.

Arguably, the collapse in commodities prices hasn’t helped Wesfarmers, which has a big exposure to the sector. But with commodity prices recovering, and if its UK Bunnings venture pays off, you could see the share price rise higher from here.

Regards,

Kris

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Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Markets and Money e-newsletter in 2005. He is the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service, Markets & Money.


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