Australian retailers will deliver good results for the upcoming reporting season in February and March 2023, once again mystifying many that worry about higher interest rates. While reporting season will reveal impressive earnings for most, we are becoming more cautious. It may sound like a contradiction, but this set of results is likely a peak and earnings could fall meaningfully over the next 18 months as sales growth falls below cost growth.

We expect Christmas retail sales to surprise on the upside with a partial offset in lower profit margins. The strongest feedback comes from department stores, electronics and supermarkets. However, not all have done well. Off-premise liquor looks to be in decline and womenswear feedback is weak.

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.