Australia's Wesfarmers first-half profit jumps on Kmart, Bunnings boost

By Sameer Manekar

(Reuters) -Australia's Wesfarmers posted a better-than-expected half-year profit on Thursday, boosted by strong sales growth at its budget department store operator Kmart and hardware business Bunnings despite persisting inflationary pressures.

Kmart logged record first-half earnings on strong growth in apparel sales, while Bunnings benefited from strong consumer and commercial demand.

"Wesfarmers' retail divisions executed strongly during the half, responding effectively to changing customer needs as households increasingly sought out value," Wesfarmers Managing Director Rob Scott said in a statement.

The Perth-based conglomerate's net profit after tax rose 3% to A$1.43 billion ($927.93 million) for the six months ended Dec. 31, compared with A$1.38 billion a year earlier. That beat analysts' expectations of A$1.34 billion, according to LSEG data.

Revenue from the Bunnings division increased 1.7% to A$9.96 billion, while Kmart sales rose 4.8% to A$5.99 billion.

"Earnings growth for the half reflected Kmart's strong trading performance, including strong growth in apparel sales as a result of improvements in the product offer," Wesfarmers said.

Jefferies analysts said the results were "very strong across core businesses" with sales broadly consistent with their expectations.

"Better than expected margins in Kmart & Bunnings seem to be underpinned by strong cost control despite acute underlying inflation," Jefferies analysts added.

Wesfarmers warned inflationary pressures were persistent in the current financial year.

"Domestic cost pressures in Australia and New Zealand are expected to remain elevated, driven by inflation, labour market constraints and wage cost increases, and energy and supply chain costs," the company said.

The Perth-headquartered firm declared an interim dividend of 91 Australian cents per share, up from 88 Australian cents apiece declared last year.

For the first five weeks of the second half, Kmart delivered strong sales growth and Bunnings' sales growth was broadly in line with the first-half results, the company added.($1 = 1.5411 Australian dollars)

(Reporting by Sameer Manekar and Archishma Iyer in Bengaluru; Editing by Anil D'Silva, Shinjini Ganguli and Jamie Freed)