Owners of Wesfarmers Ltd (ASX: WES) shares have done very well over the long-term. In the past five years, the ASX retail stock has risen 105%. Those strong gains may mean that the owner of Bunnings, Kmart, Officeworks and others is now a significant allocation in an investor's portfolio.
I still believe the business has a lot of growth potential, particularly with its global expansion efforts with the Kmart private brand, Anko.
But, there could be other businesses that are worth putting in the portfolio to diversify one's exposure to ASX retail stocks.
Below are two of the businesses from the sector I'm most excited about.
The company describes itself as Australia's leading online retailer of furniture and homewares. It now has over 200,000 products on sale from hundreds of suppliers. Many of the products are sent directly to customers by suppliers, reducing the need to hold inventory and enabling a broader product range. The company also has a private label range.
This ASX retail stock is benefiting from the growing adoption of online shopping, which is boosting the number of customers. As a digital business, it's benefiting from growing scale – more customers are utilising the same company infrastructure.
The business is growing rapidly – in the period of 1 March to 5 May 2025, revenue grew 23% and its operating profit (EBITDA) margin is expected to hit the top end of its guidance range. It's good to see strong profit margins for the business and bodes well for when it's a bigger business.
It's also exciting to see the ASX retail stock's growth efforts pay off – the home improvement segment saw revenue growth of 42% year over year for the period of 1 January to 5 May 2025.
I think this business has the potential to become a lot larger from here.
Nick Scali is one of the larger furniture retailers in Australia, with both the Nick Scali and Plush businesses.
Despite the headwind of higher interest rates, sales have held up quite well, in my view. In the FY25 half-year result, the company's Australian and New Zealand revenue only declined by 1.8% to $222.5 million.
With the Reserve Bank of Australia (RBA) official cash rate 50 basis points (0.50%) lower than it was at the start of the year, and more cuts predicted for the next 12 months, the outlook is seemingly much brighter for this ASX retail stock (and many others).
But, this isn't just a bet on rate cuts, the business has significant growth plans. It thinks it could add roughly 70 new Nick Scali and Plush stores in Australia and New Zealand in the long-term.
Even more excitingly, it currently has 20 stores in the UK after making an acquisition. I believe there is potential for the UK business to reach at least 100 stores because the UK population is more than double that of Australia and New Zealand combined. In the HY25 result, it said a number of potential new UK stores were being reviewed.
As a bonus, I believe this business can also continue to be a rewarding ASX dividend share.
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