Premier Investments had a solid rise in 1H23 sales but retail EBIT margins fell by 303bp, largely due to a lower currency rate for product purchases. Peter Alexander had good sales growth despite a very high baseline. The brand has contributed more than two-thirds to the group’s earnings growth over the past three years and is the key share price driver in our view. The company is flagging store openings and offshore expansion for both Peter Alexander and Smiggle. Store openings should contribute quickly, but offshore expansion will be measured in our view.

Harvey Norman reported a 2% increase in system sales but a 7% drop in group EBITDA for 1H23. The result showed margin pressure from increased discounting across its businesses. The deterioration in its recent sales trends suggests it will be a tougher 2H23e and FY24e in our view. An added risk for Harvey Norman is the higher than usual franchisee inventory holdings, which could squeeze margins further over the next 12 months. We expect margins to largely normalise to pre COVID-19 levels as sales slow and discounting levels increase.

City Chic’s 1H23 result shows the financial cost of its elevated inventory position. The second-half will also be loss-making based on our forecasts. However, the more fundamental question is the magnitude of its recovery in profit margins and the path to a net cash position. Both seem likely. However, investors will need patience. While still facing a challenging six months, conditions are likely to improve.

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.

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.