Australia's Wesfarmers shares slide as high living costs temper second-half start

By Sneha Kumar

Feb 19 (Reuters) - Shares of Wesfarmers WES.AX, Australia's biggest non-food retailer, fell by their most in over three months on Thursday after reporting a weaker-than-expected start to the second-half as consumers grappled with persistent high living costs.

Shares of the apparel-to-lithium conglomerate slipped as much as 6.1% to A$83.85 in early trading, marking their weakest one-day drop since late October 2025, as of 2353 GMT.

Australian households are tightening their purses as stubborn inflation and higher operating costs strain household and business budgets, denting retailers' earnings despite steady traffic across key divisions.

For the first six weeks of the second half, sales growth at Wesfarmers' top-performing division, Bunnings, was tracking its first-half growth of about 4%, while Kmart was running ahead of its 3.2% in the six months to December.

But the company fell short of market expectations for second-half growth on both counts.

"Australian consumer demand remains solid, but cost-of-living pressures are being felt unevenly across the economy and impacting many households," Wesfarmers said.

"The recent interest rate rise and uncertainty regarding the outlook for inflation and interest rates are affecting consumer sentiment, while higher operating expenses are weighing on business confidence and spending."

In the six months ending December 31, hardware retailer Bunnings recorded an earnings growth of 5% to A$1.39 billion ($978.42 million), while budget department store chain Kmart clocked an over 6% growth to A$683 million.

WesCEF, which includes its chemicals, energy, fertiliser and Covalent Lithium business, also registered an 18% growth in first-half earnings.

Wesfarmers said it expects earnings from its lithium business to be higher sequentially in the second half.

"While earnings are ahead, the strength in lithium had been well understood by the market," Citi analysts wrote in a note.

Strong earnings growth across divisions helped the conglomerate post first-half net profit after tax of A$1.60 billion, higher than the Visible Alpha consensus estimate of A$1.56 billion and the A$1.47 billion logged last year.

The Perth-based conglomerate, which also co-owns the Covalent lithium project in Western Australia with Chile's SQM SQMA.SN, declared an interim dividend of 102 Australian cents per share, higher than 95 Australian cents apiece last year.

($1 = 1.4207 Australian dollars)