Super Retail Group’s trading update for the first 16 weeks highlights a slight softening of sales trends and some increased pressure on gross profit margins. The increased competition in the auto market is of note given Supercheap Auto accounts for over half the group’s earnings and close to two-thirds of valuation. Repco is becoming more competitive in retail and Bunnings will expand in auto in the next six months. 

Coles reported 1Q25 supermarket sales trends slightly ahead of Woolworths. The bigger debate is whether Coles has achieved the result with less price investment. The short answer is yes, but not in a way that will protect Coles sales or margins in future. Overall growth is weak for both retailers with broadening competition for groceries in Australia. Coles decision to build another Witron DC in Victoria is logical but the cost increase suggest the return on capital may be lower than the first two DCs it built.

Woolworths reported better 1Q25 sales trends compared with recent quarters. However, the company has increased its price investment to achieve the better sales result. This price investment is likely to continue and will weigh on profit margins in FY25e with a gradual recovery requiring a cost focus beyond that year in our view. There is a risk that the discounting incites a response. Big W and NZ have had better sales growth in 1Q25 as well, but margin recovery will be years away.

Amazon Australia recently released its financial accounts, providing an interesting perspective about the battle online. We calculate that Amazon grew gross transaction value by 48% to $2.6 billion in 2021. Catch Group and Kogan had broadly flat sales. Amazon’s EBITDA margin was 1.9%, which is better than Catch and Kogan. There is an increasing intensity of competition between Amazon, Wesfarmers and Woolworths to capture customers in their “digital ecosystem”. It is not clear who will be the winner. What is clear is that it will take time and money to be successful. The costs will likely outweigh the revenue gains over the next 1-3 years.