(Reuters) -Australian retail group Wesfarmers ( WFAFF ) on Thursday rewarded shareholders with A$1.7 billion ($1.1 billion) in returns on top of a hike in dividend, and reported solid earnings as its low-priced strategies found favour with consumers.

Cash flow from its recent asset sales - including its residual interest in Coles, the divestment of Coregas and the divestment of unit WesCEF's LPG and LNG distribution businesses - made the capital returns possible.

Shareholders will gain a special distribution of A$1.50 per share as well as a hike in its final dividend to A$1.11 per share, up from A$1.07 apiece last year.

The owner of Kmart and hardware chain Bunnings saw annual net profit after tax and excluding significant items rise 3.8% to A$2.65 billion, in line with a Visible Alpha consensus estimate.

"Bunnings and Kmart remain the growth engines ... as households traded down to value but kept spending on home improvement and essentials," said Farhan Badami, a market analyst at eToro.

"Expansion of Kmart's Anko brand into Asia and North America adds a longer-term growth kicker that few other Australian retailers can match, which is helping the Perth conglomerate diversify its value offerings," he added.

Benefiting from expanded offerings, profit at Kmart grew 9.2% while profit at Bunnings increased 3.8%.

The conglomerate's two retail divisions continued to trade well in the first eight weeks of the new financial year, with Bunnings' sales growth stronger compared to the second half of fiscal 2025, and Kmart's sales growth broadly in line.

Shares in Wesfarmers ( WFAFF ) were flat in morning trade and are up more than 28% this year.

Separately, the company appointed Ken MacKenzie to succeed Michael Chaney as chairman, effective June 2026.

($1 = 1.5389 Australian dollars)