Peter Alexander is a high margin, cash generative business. However, we anticipate a sales deterioration and gross margin drop at Smiggle in FY26e, and think Smiggle will be breakeven, contributing little to our FY26e Premier Investments EBIT forecast. We have lowered our Smiggle store network forecasts, lifted operating costs but also raised gross margin expectation on favourable currency moves.

Super Retail Group has earnings upside in Rebel and from its new Victorian distribution centre. The addition of a currency tailwind for cost of goods in FY27e supports solid EPS growth. We estimate a 10% lift in the Australian dollar could be a $30 million, or 8% EBIT benefit. It is a 71bp boost to gross margins. While there is some uncertainty given changeover of CEO and a new three-year strategy plan coming, we expect the plan to have few surprises.

Viva reported a lift in group fuel volumes, better gross margins in its convenience stores and higher refining margin in 4Q25. While all these signs are encouraging, the refining margin increase was smaller than Ampol’s given maintenance and power outages. Moreover, the improvement in convenience gross margin was made on a lower sales base. Viva’s cost savings seem to be flowing through but the company will need to show a more meaningful lift in sales from the OTR conversions.

The link provides a presentation associated with a webinar we held. The webinar addressed our retail sales forecasts for 2026. We addressed the outlook for the Australian retail sector in 2026 and beyond. The sector had a strong finish to 2025 but the outlook is more hazy with risks to both sales momentum and gross margins emerging. 

Australian inflation accelerated for the December 2025 quarter. Even the trimmed mean popped to 3.4%, above the RBA’s target of 3.2%. Financial markets are pricing in a strong chance of a rate hike in February 2026. We are less convinced. While broader inflation has increased, retail price inflation is largely steady at 2.1%. Liquor inflation stepped down. Electronics, hardware, furniture and sporting goods prices were in decline. The outlook for retail inflation is lower over the next 12 months given a higher Australian dollar and lower input costs.

In our view, the Australian retail sales cycle just passed its peak in the December 2025 quarter at 6% growth. We forecast retail sales growth of 4.5% in 2026. While a moderation from the recent peak, without further house price growth, households will be less willing to use their savings to drive retail spending. Our forecast of 4.5% growth is just below long-term trends. While interest rate movements will be topical, unless there are multiple rises, the shift in the Australian dollar and house prices will be more impactful on retail spending than any rate rise itself.

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.

We have updated our forecasts for online retail sales growth and penetration in Australia. FY25 was defined by strong online sales growth in marketplaces, food delivery and electronics. We have revised our long-term forecasts with higher penetration in online food as the supermarkets embrace food delivery aggregators and click & collect. We have slightly lowered our non-food forecasts. The emphasis remains on the profitability of online retailing for bricks & mortar retailers as well as the threat of Amazon to Australian retailers as they expand their footprint.

If the Australian economy has a problem with poor productivity, how can retailers play their part in lifting productivity? In Issue 10 of The Retail Mosaic, we analyse the key measures of floor space and marketing productivity across major Australian retailers. We assess their performance over time and against local and global peers. Our preferred measure of productivity is gross profit per square metre (sqm). Some retailers stand out with impressive levels of productivity such as GyG and Peter Alexander. Lovisa and Chemist Warehouse have impressive gross profit per sqm compared with global peers which explains their international ambitions. Retailers that should be able to lift gross profit per sqm include Big W, Bunnings, Dusk, Coles and Woolworths.

Endeavour Group provided a trading update that revealed gross margin pressure on its Retail segment earnings for 1H26. The release also provided the first indications about new CEO Jayne Hrdlicka’s likely strategic direction. Ms Hrdlicka will clearly focus on price leadership and driving more sales through its stores. There is also scope to cut overheads and unwind the arrangements with Woolworths over time. We have lowered our EPS by 5% in FY26e and 1% in FY27e. We retain a Buy rating on Endeavour and expect the shares to re-rate once there is clarity from the refreshed strategy in May or June 2026.