Domino’s reported network sales down 4% and EBIT down 21% in 1H23. The worrying sign near-term is weak same store sales growth (SSSg) trends persisted into 2H23e and the company has seen a volume reaction to its price rises, limiting its much-needed improvement in system profitability. Our primary concern is the deterioration of franchisee profitability which is trending 30% below recent peaks and at a level that will discourage new store openings.

Coles reported 1H23 sales up 4% and EBIT up 14%. The result showed good growth on the surface, however, reduced COVID-19 costs and the accounting associated with Express earnings drove growth. While sales growth should remain strong, inflation is peaking and operating cost growth could stay elevated too. Coles’ change of CEO comes at a crucial time where delivery of new distribution centres should drive earnings over the next three years.

Woolworths reported a strong improvement in profit margins in 1H23 driven by its Australian Food segment. COVID-19 costs have unwound and cost efficiency programs are delivering results. We expect further margin gains in 2H23e, albeit at a smaller rate. The challenge for Woolworths is its profit margins will be close to long-term averages by the end of FY23e and EPS growth may step down to single-digits in FY24e and beyond.

Costa Group reported a weak FY22 result with sales up 11%, but EBITDA down 2%. The quality of its citrus crop dragged down pricing and profit margins significantly. Elsewhere, berries and mushrooms showed good pricing growth, while tomato prices were down. The company had high cost growth in FY22 and there will be additional freight and wage cost headwinds.

Inghams reported 1H23 sales up 9% and EBITDA down 16%. The contrast between sales and earnings reflects higher prices, more than offset by higher costs. The magnitude of the price rises is significant and will be an even greater contribution to sales in 2H23e on our estimates.

Super Retail Group’s strong 1H23 result was accompanied by accelerating sales in its January 2023 trading update. Can the company buck the broader macro trend where signs of slowing sales are emerging? It’s unlikely in our view. Fading inflation and a peak in domestic tourism make it likely there is a sales slowdown by mid-year. Super Retail’s gross margins are likely to drop as sales slow even though it has some cost reductions in sourcing and sea freight.

Wesfarmers reported a strong 1H23 result with EBIT up 13% to $2,160 million. The strength largely reflects good retail earnings and higher chemical and fertiliser prices. Even so, Bunnings profit margins declined and the good group result was partly overshadowed by a very large loss for Catch Group. The prospect for earlier lithium sales will help earnings in FY24e, although project capex is higher.

Treasury Wines reported a mixed 1H23 result. Underlying sales were weak, but profit margins improved significantly. The Franks Family acquisition contributed almost two-thirds to its EBITS growth. The company needs to lift its marketing and promotional investment in 19 Crimes to stabilise revenue. Gross margin improvement was significant in 1H23 and reflects the acquisition as well as reduced supply chain costs. We expect COGS improvements to be more meaningful in FY24e as grape costs fall.

While JB Hi-Fi had a record half of earnings in 1H23, that is in the rear-vision mirror. The forward trajectory suggests a normalisation of sales and earnings is imminent. We expect negative comp sales in 2H23e and 1H24e for both JB Hi-Fi Australia and The Good Guys. We expect gains from inflation, and The Good Guys improved buying terms.

Australian households may have a lot of debt, but they also have a lot of money sitting in bank deposit accounts. We keep a close eye on banking regulator data that discloses household deposits. At 31 December 2022, the total balance of household deposits was $1.39 trillion. It’s an impressive figure and equates to $125,000 per household, on average. On our analysis, deposits are about $16,000 per household higher than the trend line would suggest, which reflects the majority of the excess savings built up during lockdowns. More cash in the bank is supporting consumer spending and one of the reasons there is a disconnect between sentiment and spending in our view. For more on the disconnect between sentiment and spending, see this report, What correlates with retail sales? The disconnect between sentiment and spending