Wesfarmers Limited (ASX:WES) is a diversified Australian group with major interests across retail, healthcare, chemicals, fertilisers, industrial businesses and lithium. Its core operations include Bunnings, Kmart Group, Officeworks, Wesfarmers Health and WesCEF, while its exposure to lithium comes through a 50 per cent interest in Covalent Lithium. The FY26 result showed stronger underlying Earnings across several major divisions, although performance remained uneven, with retail growth offset by weaker Officeworks and Industrial and Safety results.

FY26 Underlying Earnings Improve Despite Lower Statutory Profit

For the year ended 30 June 2026, Wesfarmers reported group Revenue of $47.3 billion, up 3.4 per cent. Net profit after tax was $2,874 million, down 1.8 per cent on a statutory basis, although the comparison was affected by $273 million of post-tax significant items recorded in the prior year. Excluding those items, net profit increased 8.3 per cent.

The result therefore points to an improvement in the underlying earnings base even though statutory profit declined slightly. Performance was supported by earnings growth at Bunnings, Kmart Group and WesCEF, while Officeworks and Industrial and Safety recorded weaker outcomes.

Bunnings Remains the Largest Earnings Contributor

Bunnings generated earnings before tax of $2,455 million in FY26, up 5.1 per cent. The division remains the largest contributor to Wesfarmers' earnings and continues to play a central role in the group's overall financial performance.

From 1 July 2026, Blackwoods and Workwear Group were moved into the Bunnings Group while retaining their existing brands. This structure broadens the range of industrial and commercial activities reported within Bunnings and may create opportunities to share systems, infrastructure and customer relationships across the enlarged division.

Early FY27 trading also showed Bunnings sales growth running slightly ahead of the rate recorded in the second half of FY26. The key issue for the new financial year will be whether this momentum can be sustained while labour, energy and supply-chain costs remain elevated.

Kmart Group Continues to Grow Earnings

Kmart Group reported earnings before tax of $1,109 million, up 6.0 per cent. The division includes Kmart and Target and remains one of the strongest contributors to group earnings outside Bunnings.

FY27 is expected to be a heavier Investment year for Kmart, with the Next Gen fulfilment programme due to begin commissioning from October 2026. This investment is intended to improve distribution and fulfilment efficiency, but the financial benefits will depend on execution, ramp-up and the pace at which operational efficiencies emerge.

For Wesfarmers Limited (ASX:WES), Kmart's ability to maintain earnings growth while absorbing higher investment will be an important part of the FY27 outlook.

Lithium Moves From Loss to Profit

Covalent Lithium contributed earnings of $40 million in FY26, compared with a $59 million loss in the prior year. This marked a significant improvement in the contribution from Wesfarmers' lithium exposure.

Spodumene production reached 209 thousand tonnes, above the nameplate capacity of 190 thousand tonnes. This indicates that mine production at Mt Holland was running above its designed annual capacity during the period.

The improved earnings contribution also reflects the shift from development towards a more established operating phase, although the Business remains exposed to Commodity pricing and the progress of Downstream refinery operations.

Mt Holland Expansion Adds to Future Capacity

A final investment decision was reached in July 2026 for an expansion intended to double Mt Holland spodumene production capacity to approximately 760 thousand tonnes per year. WesCEF's share would be around 380 thousand tonnes annually.

WesCEF expects Capital Expenditure of between $645 million and $715 million for the expansion. This means the lithium business will remain capital intensive even as its contribution to earnings improves.

The project broadens Wesfarmers' exposure to lithium, but future returns will depend on construction execution, operating costs, lithium pricing and the successful ramp-up of downstream processing capacity.

Refinery Ramp-Up Remains the Main Lithium Execution Risk

The lithium refinery remains one of the largest operational uncertainties. Ramp-up was affected by odour issues, with mitigation work beginning late in FY26.

The refinery is expected to move through further production acceleration and product qualification during the second half of FY27. Until that process is complete, the business will remain exposed to commissioning risk and the possibility that output, costs or timing differ from expectations.

The contrast between stronger spodumene production and ongoing refinery challenges means investors will need to assess the Mining and processing components separately rather than treating the lithium business as a single operating line.

WesCEF Delivers Higher Earnings

WesCEF reported earnings before tax of $473 million, up 18.5 per cent. The result benefited from improved contributions across its operating businesses, including the move into profit at Covalent Lithium.

The division is also progressing the second stage of its sodium cyanide expansion, with commissioning expected in the first half of FY27. That project adds another layer of capital deployment but also expands capacity in one of WesCEF's established businesses.

The balance between chemical operations and lithium will remain relevant because commodity pricing and project execution can introduce greater earnings variability than the group's retail divisions.

Officeworks Faces Ongoing Transformation Costs

Officeworks reported earnings before tax of $165 million, down 22.2 per cent. The result included approximately $40 million of transformation costs.

The business is undertaking a broader transformation programme that is expected to continue through to the end of calendar 2027. These costs are intended to improve systems, operating efficiency and the longer-term customer proposition, but they weigh on near-term profitability.

Officeworks therefore remains one of the weaker parts of the FY26 portfolio. The key question is whether the transformation programme can begin to produce enough operational benefits to offset continued restructuring and implementation costs.

Industrial and Safety Earnings Decline

Industrial and Safety reported earnings before tax of $76 million, down 26.9 per cent. The weaker result contrasted with the growth achieved across Bunnings, Kmart and WesCEF.

From FY27, Blackwoods and Workwear Group are included within the Bunnings Group. This organisational change may alter the way these businesses are managed and reported, while retaining their individual brands.

The integration could create opportunities for operational simplification, although the near-term financial impact will depend on how effectively the businesses are incorporated into the broader Bunnings structure.

Operating Cash Flow Remains Strong

Operating cash flow reached $4,272 million in FY26, providing substantial internal funding for dividends, investment and Debt management.

Net debt increased to $5,295 million, partly reflecting the $1,703 million capital management distribution paid in December 2025. Debt to EBITDA stood at 1.9 times.

The increase in debt is relevant because FY27 capital expenditure is expected to remain elevated, with net capital expenditure guided at between $1.3 billion and $1.5 billion. This means the group will need to balance investment across retail, industrial and lithium projects with dividends and balance-sheet discipline.

Dividend Increases With Underlying Earnings

Wesfarmers declared a fully franked final Dividend of 120 cents per share, with a Record Date of 2 September 2026 and payment scheduled for 7 October 2026.

Together with the 102-cent interim dividend, the total FY26 ordinary dividend reached 222 cents per share, up from 206 cents in the prior year.

The higher distribution reflected stronger underlying earnings and cash generation, although future dividend growth will need to be considered alongside the group's heavier investment programme.

FY27 Brings Higher Cost Pressures

Management has flagged higher labour, energy, supply-chain and borrowing costs for FY27. These pressures will affect several operating divisions and could limit Margin expansion even if revenue continues to grow.

Cost-of-living pressures also remain relevant for the retail businesses because they influence consumer spending patterns. Bunnings and Kmart sell into categories with different degrees of discretionary exposure, meaning changes in household budgets could affect volumes differently across the portfolio.

The group's diversified structure provides some earnings balance, but it does not eliminate exposure to Inflation and consumer demand.

What to Watch in FY27

The near-term focus will include the final dividend payment on 7 October 2026 and early trading trends at Bunnings and Kmart. Commissioning of Kmart's Next Gen fulfilment infrastructure from October 2026 will also be important for assessing whether the division can convert higher investment into operational efficiencies.

In lithium, attention will remain on the Mt Holland expansion, refinery ramp-up and product qualification. The second stage of the sodium cyanide expansion in the first half of FY27 will provide another measure of WesCEF execution.

Officeworks' transformation progress will also matter, particularly whether one-off costs begin to fall and operating performance stabilises. For Wesfarmers Limited (ASX:WES), FY26 showed that Bunnings and Kmart remain the core earnings engines, while lithium is beginning to contribute more meaningfully. FY27 will test whether that broader portfolio can absorb higher investment and cost pressure without weakening underlying returns.