Wesfarmers pushes back on Peter Dutton’s ‘profit-gouging’ hit at Bunnings

Wesfarmers has pushed back against Opposition Leader Peter Dutton’s claims of price-gouging by its flagship Bunnings business and other big-box retailers, saying critics are taking billion-dollar profits out of context.

The conglomerate’s chief executive Rob Scott on Thursday defended Bunnings by arguing its financial success had been built on a record of delivering lower prices to customers at profit margins that were largely unchanged for the past decade.

“When you throw a (profit) number out there of $100 million, a billion, two billion, these are big numbers. And many people don’t really understand the context of those numbers,” Mr Scott said.

“But at the end of the day, Bunnings’ profit margins . . . have been much the same for the past 10 years.”

Mr Scott said he was “surprised” by the political scrutiny, which is set to intensify at an upcoming parliamentary inquiry, because the hardware giant was “well known for its commitment to the lowest prices”.

“What we find is that when Bunnings goes into a new region or goes into a new category, it generally decreases the prices, improves choice and drives very significant community benefits,” he said.

Mr Scott was talking as Wesfarmers disclosed a 3.7 per cent increase in annual profit to $2.56 billion on a 1.5 per cent increase in revenue to $44.2b, despite the cost-of-living pressures weighing on consumer spending, weaker commodity prices and a weak residential building market.

Bunnings, which accounts for the lion’s share of Wesfarmers’ profit, led the way with just a 0.9 per cent increase in pre-tax profit to $2.2 billion in the year to June 30. Its profit margin actually fell to 11.9 per cent from 12 per cent previously and is down from 13 per cent in 2021.

Wesfarmers is hoping that interest rate cuts and lower inflation will reduce pressure on household budgets this financial year. However, it expects higher costs for energy, labour and raw materials to again challenge the group’s profits.

The profit result brought an end to Wesfarmers’ record share price run this week, with the stock giving up more than 4 per cent after the profit announcement as investors digested slowing growth at Bunnings in the first weeks of the new financial year and falling capital expenditure at the business..

With the Opposition trying to improve its cost-of-living credentials ahead of next year’s federal election, Mr Dutton on Monday described as “astronomical” the difference in profit margins between Bunnings and its smaller rivals.

“Ultimately, we want a free market to operate effectively, and a free market is not where consumers are being ripped off,” he said.

Mr Scott said on Thursday that while Wesfarmers did not want to “get involved in the politics”, it was “understandable these questions are being asked” given Australian households were battling higher bills for food, water, power and insurance.

“What it means is that there is an onus on business to demonstrate it is doing the right thing by customers, and secondly, that it’s demonstrating that they are adding value over and above to their shareholders,” he said.

“In the past 12 months, the reason we were successful financially is because we were delivering the lowest prices.

“Because we are a profitable business, we were able to pay our team members more — we grew our wages bill by $300m — we paid an extra $100m to the Government in tax and charges (and) were able to pay our shareholders $2.2b in franked dividends.

“And a lot of those dividend payments go into private households and retiree bank accounts, and that’s what they use to buy their food and pay their rents.”

Wesfarmers said profit growth at Bunnings, Kmart, Officeworks and its industrial arm was offset by falling profits at its chemicals, energy and fertilisers arm due, largely due to lower prices for ammonia and higher charges for gas.

Kmart Group, which combines Kmart and Target, was again the star of the conglomerate, lifting profit 25 per cent to $958m on just a 4.4 per cent increase in revenue to $11.1b as more cost-challenged shoppers sought out cheaper hone products and apparel.

Wesfarmers’ new lithium business lost $26m after selling 20,000 tonnes of spodumene amid languishing prices for the battery metal in the June half-year, but its first production of value-adding lithium hydroxide from a new refinery being built at Kwinana is still months away.

Directors declared a a fully-franked final dividend of $1.07 a share, bringing total dividends to $1.98, 3.7 per cent higher on the prior year.