Wesfarmers Sees Plenty Of Opportunities

Australia | May 28 2025

Wesfarmers' strategy day highlighted further growth opportunities including a doubling in size of Kmart and Anko going international.

-Wesfarmers' strategy briefings outline growth opportunities
-Management aims to double the size of Kmart
-Marketplace and retail media to lift margins
-International growth for Anko could be sizeable

By Mark Woodruff 

Last week's 2025 Strategy Briefing hosted by Wesfarmers ((WES)) provided updated insights into the growth opportunities available for each business division and group strategy going forward.

Primarily focusing on market share growth opportunities, particularly in Bunnings and Kmart, management also detailed retail media opportunities across Bunnings, Kmart, Officeworks, and Priceline.

No trading update was provided for retail-related activity, but lower guidance was issued for the Lithium business, indicating to analyst at Morgans management is comfortable with consensus forecasts for the remaining divisions.

Impressively, management outlined an aspirational goal to double the size of Kmart, referencing earlier ambitions of reaching $10bn in sales and $1bn in earnings before tax (EBT).

This goal implies to Macquarie a potential future sales target of more than $20bn for Kmart. While management emphasised its intention to grow earnings faster than sales, it did not provide a specific timeline for achieving this objective.

Wesfarmers operates across home & office supplies (Bunnings & Officeworks), discount department stores (Kmart and Target), pharmacies (Priceline), engineering/industrial consumables & safety products (Hard Yakka, KingGee, others), chemicals/fertilisers, and energy interests.

Positively, management believes the core business offers more growth opportunities today than it did five years ago, with incremental investments in these areas delivering the most compelling returns.

Citi's key takeaways from the investor day were, firstly, the earnings outlook for Lithium remains significantly challenged due to prevailing market conditions, but also that Kmart is well positioned to benefit from a recovery in consumer spending.

For Jarden, the highlight was management's confidence that expanding marketplace opportunities can be achieved without a material increase in capital expenditure.

Jarden analysts believe Bunnings, Kmart, and to a lesser extent Officeworks, are entering a strategic sweet spot where recent investments are poised to deliver strong returns.

Given lower incremental capital expenditure (excluding supply chain), these businesses seen as are well positioned to benefit from high-margin opportunities in retail media, loyalty programs, and category expansion.

The marketplace and retail media

Margin accretion is being sought via further scaling of marketplace and retail media, explain analysts at Goldman Sachs.

The marketplace refers to the company's digital commerce platform which aggregates and sells products from both its own retail brands and third-party sellers, allowing customers to shop a broader range of goods online.

Retail media refers to the monetisation of physical and digital retail environments by offering advertising opportunities to suppliers and brands, leveraging the company's proprietary customer data and in-store assets. 

Retail Media is now consolidated under the "OneReach" banner. Morgan Stanley highlights the most significant opportunities here lay within Bunnings, Officeworks, Health, and eventually Kmart as its marketplace scales.

As a rapidly expanding market segment, driven by the shift in advertising spend from traditional channels to retail media, this broker considers Wesfarmers as uniquely positioned to benefit, through leveraging its extensive access to first-party data.

The Anko opportunity

Many readers will have noticed the ubiquitous presence of flagship owned brand Anko in Kmart and Target stores.

In contrast to traditional private labels, Anko is built on Kmart's end-to-end sourcing, product design, and supply chain capabilities. The brand focuses on simplicity, running one brand across most categories, which delivers economies of scale. 

Now, management reveals Anko products are gaining strong traction with customers globally, following the successful launch of furniture and homewares in Canada, wooden toys in the US, and general merchandise in the Philippines.

Should execution remain strong, Morgans believes the international growth potential for Anko could be substantial.

Positively, Citi left the investor day less concerned about the risk of consumers trading up to branded products and away from Kmart as discretionary spending improves.

Kmart positions Anko as a credible brand in its own right, suggest the analysts, supported by strong engagement from social media influencers.

Company-wide, FY26 capital expenditure is guided to land at the lower end of the $1.1bn-1.3bn range, while options for capital management will be assessed following the anticipated $770m in proceeds from the sale of Coregas in December last year.

Divisional roundup

In the Health division, Morgan Stanley notes the strategy centres on scaling the retail footprint, increasing market share, and expanding private and exclusive brand offerings.

The recent launch of Atomica, the physical beauty and wellness store, aims to broaden the division's addressable market and enhance its overall service proposition.

While management is -12-18mths behind on wholesale productivity improvements in the Health division, Goldman Sachs reports new facilities are delivering to plan and management is positive on Priceline.

Morgan Stanley highlights Officeworks' strategic expansion into technology categories (including laptops, phones, and TVs) supported by investments in upgraded store formats, staff capability, and a stronger emphasis on delivering personalised service.

The around $110bn total addressable market (TAM) was reiterated for Bunnings. When Macquarie compares this number to FY24 sales, around 17% market share is implied, suggesting to the broker a significant growth opportunity remains.

As flagged at the Bunnings investor day in March, management sees a significant runway ahead for growth, further detailed at https://fnarena.com/index.php/2025/03/31/bunnings-seeks-to-expand-its-dominance/

The company aims to expand its offering in adjacent categories such as kitchen appliances, as it sees opportunity to sell these alongside sales of kitchen cabinetry.

Key categories have recently been rolled out (or enhanced) including Automotive, EV charging, Renewable Energy, and Assisted Living following the group's successful entry into Pets and Cleaning.

Regarding Kmart, Gen Z and Gen Alpha are the fastest-growing customer segments, and Kmart is investing in relevant categories and in its digital capabilities to cater to this growing cohort.

Management at Kmart is also investing in its supply chain and omnichannel capability, including the transition of customer fulfilment centres from the (failed) Catch business and a new fulfilment centre in NSW, explains Macquarie.

Lithium is expected to remain a near-term drag on performance, with management now forecasting a FY25 loss of approximately -$60m, down from -$48m previously, reflecting softer market pricing and reduced spodumene concentrate production.

Losses in FY26 are projected to exceed those in FY25 (contrary to earlier expectations of an improvement) due to ongoing price weakness, elevated unit costs during refinery ramp-up, and delays in securing offtake agreements.