Wesfarmers reported EBIT growth of 7% in FY26. The company’s retail businesses had EBIT growth of 4%. Bunnings has so far shown resilient performance, but it is too early to see any downturn. Hardware sales are well correlated with mortgage refinancing, three months lagged. The downturn is imminent, around September 2026. We see same store sales slowing to 2% or so. Kmart will have low EBIT growth in FY27e as it upgrades its distribution centre. Wesfarmers will also have a step-up in interest costs of 17% in FY27e.

Woolworths reported FY26 sales growth of 4%, EBITDA growth of 7% and EBIT up 13%. The company’s sales momentum remains good and it should continue for the next six months, but then outperformance is likely to fade as Woolworths laps higher promotional activity. We expect a modest pick-up in inflation. Woolworths earnings growth was helped by unusually low depreciation growth. Nevertheless, Woolworths has more margin expansion opportunity over the next three years than Coles. The NZ and Big W segments had better earnings. The path to a 10%+ return on funds is plausible for these businesses but margins would still be low by historical and industry standards.

Coles Group reported FY26 EBIT growth of 10% driven by better gross margins and tight cost control in its Supermarket business. The outlook for margin expansion from here is limited given Supermarket margins are at a decade high and cost inflation will be elevated in the next 12 months. Coles Liquor business may stabilise earnings, but its EBIT margin of less than 2% looks like persisting for some time. Coles will spend more capex on supermarket renewals and automated DCs. This is sensible investment but does mean that free cash flow will be limited.

Woolworths has good sales momentum, which has led to a higher PE ratio. The chances of surprisingly strong sales momentum in Woolworths trading update is high given the success of the Ooshies collectables campaign. We may see sales growth of 7%+. However, such programs have no discernible ongoing benefit to sales. As a result, Woolworths sales trends are peaking and are likely to slow through FY27e.

Coles confirmed it is assessing the merits of an acquisition of Greencross, the parent company of Petbarn and Greencross Vets, owned by TPG and super funds. The press speculation of a $4 billion acquisition price is full. Coles could debt fund such an acquisition. It will be EPS accretive, but the real question is whether it is value accretive. We worry about the future growth of the pet industry given its COVID-19 boom. The market is also potentially saturated with stores and migrating online. Any acquisition price above $4 billion would concern us.

Woolworths is undertaking a program called Customer Offer Reset (COR), which will reduce its branded range and shift more products to an every day low pricing (EDLP) proposition called Lower Shelf Price (LSP). The program will show up on shelf shortly and impact the next two years. COR and LSP should be positive for sales and earnings, but it does depend on the competitor response. These programs demonstrate a sharper focus by Woolworths on execution and price trust. While not solely related to COR and LSP, we expect Woolworths to sustain above market (and Coles) growth over the next year and EBIT margin expansion.

Wesfarmers 2026 strategy day had familiar messages about driving growth and productivity. What we found new was the emphasis about online marketplace growth, higher returns in Health and the confidence about its lithium expansion plan. We are cautious about slowing sales in Bunnings over the next 12 months.

The RBNZ remains on hold while the RBA has already raised rates three times this year. New Zealand retail sales began recovering in the September quarter 2025 and the income backdrop remains good for NZ consumers despite the risk of higher inflation and interest rates. We forecast New Zealand retail sales growth to hold at 4.2% over FY27e, with 3.6% growth in at-home food & liquor and 4.6% in non-food retail. The retail sales cycle in New Zealand may be more uncertain in FY27e, but the long-dated impact of rate cuts is still a tailwind, along with improving net migration and employment growth. Key retailers that have earnings upside in NZ are Ampol, Woolworths and Harvey Norman. To a lesser extent, JB Hi-Fi and Nick Scali will see upside to earnings but both have a very small store network.

Coles reported 3Q26 sales growth of 3.1%. While 3Q26 sales lagged its rival, Coles Supermarket track-record has been superior to rivals and the market over the past three years. Its Supermarket growth rate is likely to converge with Woolworths over the next nine months in our view. In Liquor, Coles rebranding has not delivered any earnings improvement and former First Choice stores could be shut down in our view. Coles looks to have enough flexibility to manage the fuel price and inflationary pressures near-term. The more important debate will be the ability of the two major supermarkets to ensure ongoing healthy rates of sales growth, which should occur as food inflation accelerates over the next year.

Wesfarmers reported EBIT growth of 8% in 1H26. There was solid growth in its retail business and an outsized earnings improvement in lithium and associate income. The shape of the result raises debate about the likely operating leverage in Bunnings and Kmart, which we expect to be modest, especially as depreciation expenses normalise. We are also likely to see slowing sales trends on a 12-month horizon given weaker household income growth and fading price inflation. Wesfarmers will have solid EPS growth of 7% over FY26e and FY27e helped by higher lithium prices.