The upcoming reporting season for consumer companies is likely to reveal good sales trends but some gross margin pressure. We expect strong sales and margin outcomes for Sigma and Nick Scali. Retailers with some downside risk to consensus profit margins include JB Hi-Fi and Woolworths. The fact that the economic backdrop for retail may become tougher will result in a greater emphasis on trading updates. We are sitting below consensus on many stocks over FY26e and FY27e. The standouts are A2 Milk, Bapcor, Domino’s, Premier and Temple & Webster.

This chart pack provides subscribers with insights about the retail operating environment and outlook for sales, gross margins and operating leverage. The chart pack has been compiled post the FY25 reporting season across the retail market providing fresh insights about the sector.

The Australian consumer sector is likely to report a wide divergence in fortunes this reporting season. Even though sales trends are improving, operating cost growth is elevated and gross margin gains are fading. The companies with the best earnings growth for FY25e are likely to be Breville, GyG, Harvey Norman, Lovisa, Sigma and Treasury Wines. For most of these, consensus expectations are already high and commentary on current trading and costs will influence share prices. At the other end, retailers with double-digit declines in earnings are Endeavour, Myer, Nick Scali and Woolworths.

The upcoming 1H25e reporting season will reveal divergent fortunes for retailers. We expect more retailers to report a decline in earnings than those with growth. While retail sales growth is improving, its not yet enough to cover cost growth. Retailers that could surprise on the upside are JB Hi-Fi and Breville. Those that may disappoint relative to Visible Alpha consensus expectations include Wesfarmers and Woolworths.

Australian retail sales rose 4.0% in December 2024, with some notable outliers across segments. Electronics was up 11%, furniture up 8% and pharmacy up 7%. On the other hand, department stores, supermarkets, liquor and recreational goods were all very soft. Some of the shifts reflect the baseline with December compound annual growth rates actually slower than November for all categories other than hardware and liquor.

This chart pack provides subscribers with insights about the retail operating environment and outlook for wages, floor space and profit margins. The chart pack has been compiled post the FY24 reporting season across the retail market providing fresh insights about the sector.

Reporting season across the retail, food & beverages sector is likely to highlight the resilience of profit margins for FY24e, despite weak sales. The strength of margins is a function steady gross margins and cost reductions. While good news, consensus expectations already reflect this outcome. We are above consensus on Inghams and Woolworths and below on Lovisa for FY24e EPS. We expect trading updates to influence share prices meaningfully with the risk that FY25e consensus needs to be downgraded for many. We are below FY25e consensus on Bapcor, Premier Investments, Super Retail Group and Wesfarmers.

Many Australian consumer companies are likely to report weak 1H24e results. However, they are likely to be better than consensus estimates with slightly better sales trends and higher gross margins in some cases. While earnings should be fine this half, share prices have run in anticipation of results and the trading updates and outlook commentary are likely to flag higher operating cost growth as a headwind.

Australian retailers have had a decent Christmas in 2023, particularly compared with low expectations amongst retailers and investors. Supermarkets traded solidly and electronics demand improved from very weak levels. Liquor and apparel are still trending at very low rates of growth. There is consensus upgrade risk to retailers, particularly Harvey Norman and Super Retail Group. While sales trends are slightly better, the strength of gross margin is the most significant driver of better earnings. The retailer where feedback has shifted most positively is Harvey Norman.

This chart pack provides subscribers with insights about the retail operating environment and outlook for wages, floor space and profit margins. The chart pack has been compiled post the FY23 reporting season across the retail market providing fresh insights about the sector.