Harvey Norman has provided an AGM update that reflects the strength of the consumer in many of its markets. Australian comparable sales rose 8.8% and the three-year CAGR is 8.0%. Slovenia and Ireland are also very strong. Given good sales results, we expect profit margins to only fall slightly in FY23e. If Harvey Norman can reduce its inventory levels in an orderly manner, the margin compression could be less than feared.

City Chic’s high inventory position has made investors nervous. We acknowledge the risk but feel that the combination of solid demand for fashion in its key markets, and a return to a net cash position is appealing. It won’t be a smooth ride for investors, but the company should emerge over the next 12 months with a stronger position in global plus-size fashion market and a net cash position.

We are entering the silly season for retail. Over recent years promotions have started earlier with a rapid embrace of offshore events like Black Friday. Achieving a good November and December can make or break a retailer’s year. We expect earlier and bigger promotions this November, but it’s not a sign of desperation. These promotions are planned and aimed at stimulating sales. Even so, given huge November events in 2020 and 2021, it will be hard to deliver more than 3% sales growth in our view. With a swing back to stores this year, we expect December to be stronger.

Ingham’s earnings recovery is dependent on the path of feed costs and its ability to raise prices. There is a high degree of uncertainty on both parts but enough upside potential for us. We reduce our EBITDA forecasts by 4%-5% over the next two years given higher feed costs. However, price rises look like they are flowing through and any normalisation in commodity prices would lead to a meaningful profit margin rebound for the company.

Woolworths reported 1Q23 sales growth of 1.8%. This low rate of growth simply reflects a high hurdle from lockdowns over the past two years. We expect sales growth to recover to 5%-6% from here and the growth gap to Coles will narrow. The market remains orderly around price inflation, which will support earnings growth. Moreover, the headwinds in NZ should ease soon and margins are likely to recover in calendar 2023.

Australian retail sales rose 18.6% year on year in September 2022. The three-year compound annual growth rate for September was 8.8%, an acceleration on 7.7% in August. Interestingly, COVID-19 winning categories, hardware and furniture, have started to slow this month. Online sales have continued to fall, down 18.6% year on year, largely reflecting lockdowns last year. The three-year CAGR remains at 27%. We expect overall retail sales will show weakness in November as we lap large Black Friday sales. Retail sales are likely to be softer in 2023 as higher interest rates take effect and savings rates are lower.

Domino’s AGM update gave some positive signs about sales trends improving, but also solidified concerns about the challenge in raising prices to cover higher costs. The company is planning for a much better 2H23e, which looks difficult to achieve in our view, particularly given franchisee profitability is falling.

Premier Investments provided a trading update to say that its first 12 weeks of FY23e has seen sales up 43%. These growth rates lap lockdowns from last year and are distorted. Nevertheless, underlying demand is strong as consumers have ramped up fashion spending. We expect sales growth to slow to very low single-digit from November onwards and sales are likely to decline in 2023.

Super Retail Group’s trading update showed very strong sales for the first 16 weeks of FY23e. Sales are elevated given lockdowns dragged down sales last year. Even so, the three-year average growth rates are high single-digit at least, reflecting strong consumer demand and higher prices. We expect sales to slow from here and are therefore fundamentally cautious on the stock.

JB Hi-Fi reported a very strong 1Q23 sales trading update, which was elevated given the period lapped lockdowns last year. The three-year average growth rates are mid to high single digits reflecting sustained consumer demand and support from both price inflation and mix. We expect sales momentum to slow in 2Q23e as the company laps a more normalised sales base. We forecast 2Q23e comp sales for JB Hi-Fi Australia at 4.4% and The Good Guys at 3.3%. Given we expect a sales slowdown from here, we are more cautious on the stock.