---
endpoint: analytics
pattern: Consumer
status: done
latency_ms: 123643
conversation_id: 3724364d-01dc-48a4-a361-472e40d16813
citations: 10
created: 2026-05-31 21:05:55Z
---

# What is Wesfarmers’s core business franchise and the key components of its operating model?

## Wesfarmers (ASX: WES) — Core Business Franchise & Operating Model

**Note on source coverage:** CLSA's internal RMS archive contains only weekly strategy wraps and screening notes that list WES alongside many other ASX names — there is no dedicated single-stock CLSA initiation / company note on Wesfarmers in the workspace. The substantive description below is therefore drawn from Wesfarmers' own H1 FY2026 earnings call (reported 18-Feb-2026), with management commentary from MD Rob Scott, CFO Anthony Gianotti, and the divisional MDs.

---

### 1. The Core Franchise — A Diversified Australian Conglomerate

Wesfarmers is structured as a **portfolio of operating divisions** under a corporate centre, with a single guiding objective: deliver **"a satisfactory return to shareholders…defined as a top-quartile total shareholder return over the long term,"** achieved by serving customers, team, suppliers, communities and the environment together [1]. The franchise rests on three earnings pillars:

| Pillar | Divisions | Role in the portfolio |
|---|---|---|
| **Big-box retail (the earnings engine)** | **Bunnings** (home improvement / trade), **Kmart Group** (Kmart + Target, powered by the **Anko** product platform), **Officeworks** | The "largest divisions" — Bunnings and Kmart are the dominant profit contributors [2]. Bunnings + Kmart Group alone generated ~A$2.07bn of divisional earnings in 1H FY26 (Bunnings A$1.39bn +5% ex-property; Kmart Group A$683m +6.1%) [3]. |
| **Industrial — WesCEF (Chemicals, Energy & Fertilisers) + Lithium** | Ammonia, ammonium nitrate, Kleenheat LPG, fertilisers, and the **Mt Holland / Covalent lithium** JV | Globally-competitive industrial businesses supplying "strategically important industries" (WA mining demand for AN; lithium hydroxide refinery now producing first product) [5]. |
| **Newer growth platforms** | **Wesfarmers Health** (Priceline Pharmacy, MediAesthetics, Digital Health/InstantScripts, Wholesale), **Industrial & Safety** (Blackwoods, Workwear Group) | Health is the new growth leg (1H FY26 earnings +9.8% ex-amortisation; Priceline network sales +14.4%) [6]. Industrial & Safety revenue ex-Coregas grew 1.3% to A$869m, with Blackwoods gaining share [6]. |

Across the group, Wesfarmers employs **~120,000 team members** [7].

---

### 2. Key Components of the Operating Model

**a) Decentralised divisional accountability with central capital allocation.** Each division has its own Managing Director with full P&L ownership (Mike Schneider — Bunnings; Aleksandra Spaseska — Kmart Group; Aaron Hood — WesCEF; Emily Amos — Health; John Gualtieri — Officeworks) [2]. The corporate centre's roles are capital allocation, portfolio management (divestments such as Coregas and BWP Management), and shareholder returns (1H FY26 fully-franked dividend of A$1.02/share, +7.4% YoY) [4].

**b) Everyday Low Prices (EDLP) as the franchise value proposition.** Management explicitly frames EDLP as the engine of customer trust and volume growth: *"…we can use this to extend our EDLP leadership in our retail divisions to support customers and grow earnings, since in a world of agentic commerce, value will continue to be a point of differentiation"* [7]. The Bunnings model is described as a *"resilient business model…that mix of discretionary necessity across both consumer and commercial"* — i.e. trade demand cushions consumer cycles [8].

**c) Productivity & "low-cost operating model" discipline.** Each division is mandated to drive a productivity agenda that funds price reinvestment. Officeworks is mid-transformation, with A$15m of one-off restructuring/ERP costs in 1H FY26 as it *"transitions to a low-cost operating model to support low prices for customers and long-term earnings growth"* [4]. Blackwoods and Workwear Group similarly reset their cost bases in FY25 [6].

**d) People-first, digitally-enabled technology layer.** Wesfarmers is scaling AI across the portfolio — *"…it combines traditional AI, so machine learning, generative AI, agentic AI workflow and low code automation"* — with Bunnings already deploying AI price markdown tools (~100,000 hours saved), a store-network chatbot, and ~620 live copilot agents in support functions [9]. The group is investing to train all 120,000 employees in these tools [7].

**e) Shared group infrastructure — OneDigital.** A central digital platform that monetises group-wide assets across the retail brands: *"…our continued investment in OneDigital, including the OnePass membership program, the group's shared data asset and retail media network"* — with the retail media business being newly established and benefits flowing back into divisional results [10].

**f) Vertical product development & global sourcing.** Kmart's **Anko** private-label platform is the unique product engine — *"strong value credentials and the uniqueness of the Anko product range, delivering growth in customer numbers"* with "one-up and two-up" extreme-value price tiers [3]. Bunnings' global sourcing program covers ~30% of its range, focused on entry-level / commodity SKUs to anchor opening price points [11 — Bunnings global sourcing commentary, same call].

**g) Sustainability integrated into the operating model.** Group Scope 1 & 2 market-based emissions fell >27% half-on-half on the back of the retail divisions hitting **100% renewable energy** in calendar 2025; A$59m contributed to community programs across ANZ [12].

---

### 3. How These Components Reinforce Each Other

```
Customer value (EDLP)  ←  Productivity / low-cost ops  ←  Scale of Bunnings & Kmart
        ↓                                                          ↓
   Volume growth                                          Cash generation
        ↓                                                          ↓
 OneDigital data layer  →  Better ranges / sourcing / media revenue
        ↓                                                          ↓
 Group capital pool  →  Re-deployed into Health, Lithium, AI, store refresh
        ↓
 Top-quartile TSR (the stated objective) [1]
```

The model is essentially: **scale-driven retail cash flows + centralised capital discipline + shared digital infrastructure**, with management willing to absorb near-term P&L pain (Officeworks transformation, Blackwoods reset) to preserve the EDLP/productivity flywheel that defines the franchise.

---

**Sources**
[1] Wesfarmers Ltd. — Q2 FY2026 Earnings Call (18-Feb-2026) — Rob Scott on the group's primary objective
[2] Wesfarmers Ltd. — Q2 FY2026 Earnings Call — largest divisions and new growth platforms; divisional MDs named
[3] Wesfarmers Ltd. — Q2 FY2026 Earnings Call — 1H FY26 divisional earnings; Bunnings A$1.39bn, Kmart Group A$683m, Anko commentary
[4] Wesfarmers Ltd. — Q2 FY2026 Earnings Call — Officeworks low-cost operating model transition; dividend
[5] Wesfarmers Ltd. — Q2 FY2026 Earnings Call — WesCEF chemicals/Kleenheat/fertiliser/lithium commentary
[6] Wesfarmers Ltd. — Q2 FY2026 Earnings Call — Wesfarmers Health and Industrial & Safety divisional results
[7] Wesfarmers Ltd. — Q2 FY2026 Earnings Call — productivity, AI, EDLP, 120,000 team members
[8] Wesfarmers Ltd. — Q2 FY2026 Earnings Call — Bunnings resilient business model (consumer + commercial)
[9] Wesfarmers Ltd. — Q2 FY2026 Earnings Call — Bunnings AI deployment scope
[10] Wesfarmers Ltd. — Q2 FY2026 Earnings Call — OneDigital, OnePass, retail media
[12] Wesfarmers Ltd. — Q2 FY2026 Earnings Call — sustainability / 100% renewable energy / community spend

## Citations

- [1] **Wesfarmers Ltd., Q2 2026 Earnings Call, 18-February-2026 9** · external
- [2] **Wesfarmers Ltd., Q2 2026 Earnings Call, 18-February-2026 9** · external
- [3] **Wesfarmers Ltd., Q2 2026 Earnings Call, 18-February-2026 9** · external
- [4] **Wesfarmers Ltd., Q2 2026 Earnings Call, 18-February-2026 9** · external
- [5] **Wesfarmers Ltd., Q2 2026 Earnings Call, 18-February-2026 9** · external
- [6] **Wesfarmers Ltd., Q2 2026 Earnings Call, 18-February-2026 9** · external
- [7] **Wesfarmers Ltd., Q2 2026 Earnings Call, 18-February-2026 9** · external
- [8] **Wesfarmers Ltd., Q2 2026 Earnings Call, 18-February-2026 9** · external
- [9] **Wesfarmers Ltd., Q2 2026 Earnings Call, 18-February-2026 9** · external
- [10] **Wesfarmers Ltd., Q2 2026 Earnings Call, 18-February-2026 9** · external

