Metcash provided a trading update indicating 1H25e underlying NPAT will be between $132-$135 million. The key driver has been the decline in sales and negative operating leverage in Metcash’s IHG hardware stores. Tough conditions are likely to prevail in 2H25e as well, albeit we are at a low point in the building cycle, providing scope for margin recovery at some point.

Reporting season across the retail, food & beverages sector is likely to highlight the resilience of profit margins for FY24e, despite weak sales. The strength of margins is a function steady gross margins and cost reductions. While good news, consensus expectations already reflect this outcome. We are above consensus on Inghams and Woolworths and below on Lovisa for FY24e EPS. We expect trading updates to influence share prices meaningfully with the risk that FY25e consensus needs to be downgraded for many. We are below FY25e consensus on Bapcor, Premier Investments, Super Retail Group and Wesfarmers.