Treasury Wines reported FY24 EBITS of $658 million with organic growth of only 4% adjusted for acquisitions and currency. The result showed the importance of the DAOU acquisition to earnings and its increasing focus on the luxury wine segment. Earnings growth in FY25e will half come from the growth of DAOU and a further quarter from Penfolds price rises. The underlying business is likely to have limited growth outside these factors given pressure on wine demand under $15 per bottle.

JB Hi-Fi reported FY24 EBIT down 16%. Sales momentum and margins were encouraging in the second-half and the company has consistently gained market share over the past five years. We expect another year of softening margins, albeit overall EPS should be up slightly in FY25e. While JB Hi-Fi is clearly a well-run business, we expect future earnings growth is likely to be low single-digit at best.

Nick Scali reported an EBIT result of $130 million for FY24, down 16%. Gross margin of 65.5% for the group and 66.0% the Australia and New Zealand (ANZ) division was a standout and record. For FY25e we expect to see modest store openings, an improvement in per store sales growth momentum from ANZ and moderate cost growth. A catalyst to the upside would be a lower sea freight rate environment and progress in the UK.

Treasury Wines has announced a write-down of $354 million pre-tax, or -33%, to its Treasury Premium Brands division. The write-down reflects weak profitability in commercial wine under $10 per bottle, of which Treasury is not alone. In many respects, we see the announcement as accounting catching up to the market reality for such wines. The bigger question on our mind is what form a divestment of commercial brands could take. These commercial brands are less than 5% of group gross profit but may be close to 20% of volumes. The challenges in commercial wine vindicates the increasing focus on luxury wines in the market. 

Australian wine exports have rebounded in the June 2024 quarter, largely given the sell-in of wines to Chinese retailers and distributors. Total exports were up 81% year-on-year. While it is good news, we will need more time to judge the rebound in Chinese consumer demand for Australian wine. Nevertheless, it does suggest concerns about excess supply already in China may be overdone.

Australian inflation was 3.8% for the June 2024 quarter and retail product inflation was 2.1%. The more granular data shows that a number of retail categories are in deflation such as furniture, electronics and sporting goods. In supermarkets, packaged grocery inflation dropped, while fruit & veg prices increased. The broader news on inflation has been largely in line with RBA expectations. We expect interest rates will remain on hold till next year and movements in interest rates will have limited impact on retail spending.

The link provides a presentation associated with a webinar we held. The webinar addressed the updated outlook for retail sales and key drivers that could trigger an improvement in spending. In the presentation, we provide an update on the outlook for retail sales, covering feedback on recent trading and expectations for FY25e. We will address which categories have the best potential for volume recovery and how they are navigating price disinflation. We will also address the risk from interest rates on retail. The presentation also includes insights about retailer profitability, inventory levels, and expectations for retail trading at the FY24e results in August.

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.

Accent Group provided a trading update and details around the planned closure of 17 stores operating under the Glue Store banner. The company highlighted strong second half like-for-like sales trends at 4.1%. This strong performance into the second half of the year was ahead of consensus at -0.4% for 2H24e. The store closures will lower group sales but we lift our gross margin expectations and see improved cost of operations from exiting a portion of the higher cost Glue Stores.