Wesfarmers welcomes interest rate cut but warns of time lag and risk of price rises from weak dollar

Bunnings owner Wesfarmers reckons Tuesday’s rate cut will take time to seep into consumer spending and could be offset by price rises flowing from the weak Australian dollar. The WA conglomerate’s chief executive Rob Scott said that while the rate cut “no question” would provide some relief for households and businesses, “it takes time to step-change confidence levels”. “There are many families and businesses struggling with mortgages and loans and it will improve their capacity to service those loans and spend money,” Mr Scott said on Thursday as he handed down better-than-expected first-half financial results for Wesfarmers. “But what really matters is what happens over the coming months,” he said. “Often what we find, when rates fall it takes quite some time before that drives a fundamental change in consumer spending.” Mr Scott said geopolitical uncertainties, as well as “a number of very meaningful cost pressures”, including around energy, and the threat of renewed inflation from US president Donald Trump’s tariff continued to cloud the group’s outlook. “You just need to look at some of the challenges in the housing sector that are fairly well understood and reported. These are not going away quickly.” In particular, he called out the weak Australian dollar, which is trading at US63.3¢ after falling from US69¢ in September to as low as US61.5¢ three weeks ago. Mr Scott said with many imported household and business goods denominated in US dollars, the weak dollar was pushing up the cost of products and the risk of price increases for consumers. “The significant decrease we have seen in the Australian dollar … is likely to flow through to higher costs on a lot of consumer and industrial product that households and businesses use … probably towards the middle of this year,” he said. “That is a cost pressure that we will have to absorb should the Australian dollar stay low. “We start from the position we always want to offer the lowest prices and the best value. “We will work really hard for the benefit of our customers to find ways to mitigate those cost pressures associated with the lower Australian dollar and it may well be that … prices don’t have to go up as much.” While none of Wesfarmers’ businesses appeared directly vulnerable to Mr Trump’s tariffs, Mr Scott said “there are always the second order impacts” on supply chains. “Clearly tariffs can be inflationary and can inhibit economic growth,” he said. Wesfarmers’ revenue rose 3.6 per cent in the first half to $23.49 billion, while net profit was up 2.9 per cent to $1.47b. Both benchmarks bettered market forecasts. The interim dividend was lifted to 95¢ a share from last year’s 91¢. Wesfarmers shares leapt more than 3 per cent on the company’s announcement before retreating to be 2 per cent higher at $78.03 as at 10.25am, outperforming the broader market, which was 1.4 per cent lower. “Another quality results from Wesfarmers, with the cashflow strong and the trading update positive,” Jarden analysts said. The increase in profit came despite a challenging economy and elevated cost of living pressures that Mr Scott said “continued to significantly impact many households and businesses”. Bunnings again demonstrated its resilience through economic cycles, growing profit before tax 3.1 per cent to $1.32b on sales growth of 3.2 per cent to $10.3b. Wesfarmers said the sales growth was “driven by sustained demand for repairs and maintenance, growth in digital sales and the appeal of new and expanded product range”. However, it was again bettered by the dual Kmart and Target division, where cost-conscious shoppers drove earnings 7.2 per cent higher to $644m, on sales that lifted 2 per cent to $6.2b. Wesfarmers’ health division — including Priceline Pharmacy, API and Silk Laser Clinics — delivered, the still-building business lifting profit 3.7 per cent to $28m as revenue rose 8.9 per cent to $3b. The Kwinana-based chemicals, energy and fertilisers division turned in a better performance, with earnings up 2.9 per cent to $177m on revenue that grew 9.5 per cent to $1.2b thanks to better ammonium nitrate contracts and sales of lithium concentrate from its WA-based Covalent joint venture with Chile’s SQM. While the mine at Mt Holland is operational, the value-adding lithium hydroxide plant at Kwinana is still nearing completion, with first product due in mid-2025 but full ramp-up potentially taking 18 months. The lithium business lost $24m in the first half as a result of weak prices, but Mr Scott said that it would have made money if the mine and refinery had been operating at full capacity during the period. Wesfarmers’ money-losing Catch.com.au, which will be wound up by the end of the financial year, recorded an 18.6 per cent drop in sales as it was overwhelmed by e-commerce giants Amazon and Temu. Wesfarmers shares are up 8 per cent in 2025, and have increased 23 per cent over the past 12 months, easily outperforming the S&P-ASX200 index’s 8.5 per cent rise. However, analysts now believe it overvalued.