Wesfarmers Limited (ASX:WES) reported higher underlying Earnings and free Cash Flow in FY26 as its retail businesses and chemicals, energy and fertilisers division contributed to group performance. Bunnings and Kmart recorded higher earnings, while WesCEF benefited from an improvement in lithium operations. Officeworks moved in the opposite direction as transformation costs weighed on earnings. The group also lifted its full-year ordinary Dividend while maintaining Investment across retail, lithium and supply-chain initiatives.

Wesfarmers operates a diversified portfolio spanning home improvement, general merchandise, office supplies, chemicals, energy, fertilisers and lithium. Its major businesses include Bunnings, Kmart Group, Officeworks and WesCEF. This diversified structure means group earnings are influenced by a mix of household spending, housing activity, Commodity markets and industrial demand.

FY26 Revenue and underlying earnings increased

Wesfarmers reported group revenue of A$47.274 billion for FY26, an increase of 3.4%.

Net profit after tax was A$2.874 billion, down 1.8% including significant items.

Excluding significant items, net profit increased 8.3%.

EBIT before significant items rose 7.3% to A$4.493 billion.

The difference between statutory and Underlying Profit reflects the effect of significant items during the year, while the increase in underlying earnings provides a clearer indication of operating performance across the group's core businesses.

Free cash flow increased 15.8% to A$3.992 billion.

Return on equity was 35.5%.

The increase in free cash flow exceeded the rise in revenue, giving the group additional capacity to fund dividends and investment.

Bunnings remained a major earnings contributor

Bunnings earnings increased 5.1% during FY26.

The Business remains one of Wesfarmers' largest divisions and is exposed to home improvement, renovation activity, construction and trade demand.

Bunnings benefits from scale across its store network and from its position across both consumer and commercial markets.

However, performance remains sensitive to housing conditions, building activity and household spending.

A slowdown in renovation or construction activity could affect demand, while cost Inflation can influence margins.

From 1 July 2026, Blackwoods and Workwear Group were moved into the Bunnings Group.

This organisational change means future comparisons of Bunnings' reported earnings will include a broader group of operations than in FY26.

Kmart Group delivered higher earnings

Kmart Group earnings increased 6.0% in FY26.

The result reflects continued contribution from Wesfarmers' value-focused retail operations.

Kmart's positioning makes pricing, sourcing efficiency and inventory management central to profitability.

Households facing cost-of-living pressure may place greater emphasis on lower-priced products, although discretionary spending can weaken when financial conditions become more restrictive.

The ability to maintain customer Demand while managing freight, sourcing and labour costs will remain important to Kmart's FY27 performance.

Lithium moved into profit

Wesfarmers reported that its lithium operations moved into profit during FY26.

The group continues to expand the Mt Holland mine and progress the associated lithium hydroxide refinery.

The improvement contributed to higher earnings within WesCEF, whose earnings rose 18.5%.

Lithium broadens Wesfarmers' earnings base beyond its established retail operations and provides exposure to demand linked to batteries and electrification.

However, lithium remains a cyclical commodity.

Prices can change materially in response to mine supply, inventories, electric-vehicle demand and new processing capacity.

For Wesfarmers, future lithium earnings will therefore depend on both market pricing and operational execution.

Refinery ramp-up remains important

The lithium hydroxide refinery remains in a ramp-up phase.

Operational issues during commissioning have included intermittent odour events, highlighting the execution challenges associated with bringing a new processing Facility into full production.

Ramp-up performance can influence production volumes, unit costs and overall returns from the lithium investment.

The contribution from lithium may therefore vary as the project moves towards more consistent operations.

Continued progress at Mt Holland and the refinery will be an important measure of whether the improvement recorded in FY26 can be sustained.

WesCEF also faced higher fertiliser costs

WesCEF combines chemicals, energy, fertilisers and lithium activities, meaning its earnings are exposed to several different operating and commodity drivers.

While lithium contributed positively, higher fertiliser input costs affected cash flow during the year.

The effect of elevated fertiliser costs reduced operating cash flows by approximately A$296 million.

This shows that stronger performance in one part of WesCEF can be partly offset by weaker conditions elsewhere.

Energy markets, input costs and geopolitical developments can all affect the division's financial performance.

Officeworks earnings declined

Officeworks earnings fell 22.2% during FY26.

Transformation costs were a key Factor behind the decline.

The division is investing in changes intended to improve its operating model, but such programmes can create additional costs before expected benefits are realised.

Officeworks also operates in a competitive retail category exposed to business spending, education demand, technology product cycles and online competition.

Its FY27 performance will depend partly on whether transformation spending begins to translate into improved operating outcomes.

Free cash flow supported higher dividends

Wesfarmers declared a fully franked final dividend of A$1.20 per share.

Full-year Ordinary Dividends totalled A$2.22 per share, representing an increase of 7.8% from FY25.

The increase in ordinary dividends broadly aligned with the 8.3% increase in net profit excluding significant items.

Wesfarmers also made a separate Capital distribution of A$1.50 per share during FY26.

This was distinct from the ordinary dividend.

The combination of dividends, capital returns and investment expenditure means cash generated by the group is allocated across several areas.

Future distributions will continue to depend on earnings, capital requirements and board decisions.

FY27 Capital Expenditure remains significant

Wesfarmers has guided to FY27 capital expenditure of between A$1.3 billion and A$1.5 billion.

Planned spending includes investment in lithium production, store refurbishments, Supply chains and modular residential construction.

The capital programme reflects continued investment across both established operations and newer growth areas.

Retail investment is intended to support store performance and logistics efficiency, while spending on lithium and modular construction expands the group's exposure to newer markets.

The return generated by these investments will depend on project execution and demand.

Modular construction adds another growth initiative

Wesfarmers is also investing in modular residential construction.

The initiative broadens the group's exposure to housing beyond the home-improvement demand captured through Bunnings.

Modular construction can potentially reduce building times and improve standardisation, but the business is less established within the Wesfarmers portfolio.

Its contribution will depend on production efficiency, customer demand, housing conditions and the ability to scale operations.

Compared with Bunnings and Kmart, modular construction remains at an earlier stage of development.

Early FY27 trading provides initial indicators

Early FY27 commentary indicated that Bunnings sales growth was slightly ahead of the second half of FY26.

Kmart and Officeworks also maintained positive sales momentum.

These early trading trends provide an initial view of demand, although they cover only a limited part of the financial year.

Full-year performance will depend on consumer conditions, housing activity, cost inflation and operating execution across the group.

The integration of Blackwoods and Workwear into Bunnings will also change the way divisional results are presented during FY27.

Sustainability metrics also changed

Wesfarmers reported that Scope 1 and Scope 2 emissions declined by almost 22% year on year.

The group operates energy-intensive industrial businesses alongside a large retail portfolio, making operational emissions an ongoing area of investment and reporting.

Future changes will depend on energy use, renewable electricity procurement, industrial processes and the mix of businesses across the portfolio.

Key risks for FY27

Housing and renovation activity remain important for Bunnings.

A slowdown in residential construction or household renovation spending could affect demand.

Kmart and Officeworks are exposed to discretionary spending and consumer confidence.

Lithium introduces commodity-price and project-ramp-up risk, particularly while the refinery is moving towards more consistent production.

Higher fertiliser input costs can also affect WesCEF cash generation.

Officeworks continues to face transformation-related execution risk.

Wesfarmers' diversified structure reduces dependence on a single industry, but it also means the group must manage very different operating conditions across retail, industrial and resources businesses.

What to watch next

Progress at Mt Holland and the lithium hydroxide refinery will remain central to assessing whether lithium can continue contributing positively to WesCEF earnings.

Bunnings and Kmart trading trends will provide further information on household demand.

Officeworks will be monitored for signs that transformation spending is beginning to translate into improved earnings.

The integration of Blackwoods and Workwear into Bunnings will also affect future divisional comparisons.

Capital expenditure across lithium, supply chains, store upgrades and modular construction will remain another area to monitor as Wesfarmers balances growth investment with Shareholder distributions.

The FY26 result shows that Wesfarmers is drawing earnings from both established retail businesses and newer industrial investments. Retail scale remains central to the group, while lithium is becoming a more meaningful contributor. The durability of that mix in FY27 will depend on consumer demand, commodity conditions and execution across the group's investment programme.