Why did Wesfarmers Ltd Drop 1.7% Off Its Share Price Today?

Wesfarmers Ltd [ASX:WES] fell 1.7% this morning to a low of $43.17 per share.

What happened to the Wesfarmers share price?

This morning, Wesfarmers released their quarter sales results.

Wesfarmers home improvement brand, Bunnings, was the stellar performer, increasing total sales 23.1% to $3.19 billion. However, Coles, Target and Kmart didn’t fare as well.

Total Coles sales rose slightly by 0.5% to $9.02 billion, but losses in Target causes department store sales to drop by 5.3% to $1.69 billion.

What investors should be focusing on is Coles. It brought in almost 62% of Wesfarmers revenues for the current financial year.

But growth for this core business is slowing dramatically, according to the Australian Financial Review.

Coles has posted its slowest growth since the Wesfarmers takeover nine years ago, with same-store food and liquor sales growth slowing to just 0.3 per cent in the March quarter as arch rival Woolworths continued to gain ground.

Coles managing director, John Durkin said:

It is necessary that we continue to proactively invest in the customer offer throughout this period of lower growth and increased competition to ensure we maintain our market leading customer offer.

What now for WES shares?

It’s very hard for Wesfarmers to grow their Coles business. Not only do they operate on very small margins, there’s little they can do to get more customers in doors. I suspect you do your own grocery shopping at whichever Coles or Woolies is closer.

I don’t really see ad spending as a sustainable way to get more weekly shoppers through the doors. It might just be that Coles plods along while Bunnings and Office Works driver overall growth for the foreseeable future.

Regards,

Härje Ronngard,

Junior Analyst, Money Morning

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