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.

Coles Group reported 2.5% sales growth and 10.2% EBIT growth in 1H26. The key driver of earnings was higher gross profit margins, which should persist in 2H26e, but then fade in future years. Cost savings and productivity benefits from its supply chain investment are also boosting profit margins. Coles sales trends have slowed highlighting the Woolworths DC strike benefit was transitory. However, its growth still outstripped Woolworths on a two-year basis. Coles has de-rated over the past month and its sales momentum is likely to converge with Woolworths over the next 3-6 months.

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.

Sentiment around Wesfarmers has dropped away in the past month. This is the retail bellwether stock on the ASX and for the first time the share price fall has outstripped the consensus earnings downward revisions. Are perceptions shifting on Wesfarmers? Perhaps. But we still expect retail sales growth of 4% and EBIT growth of 5%. 

Coles Group reported 1Q26 sales growth of 3.9% and an impressive 4.6% comparable sales growth in its Supermarkets. While the result is strong, the momentum is likely to slow as its larger rival Woolworths starts to improve its execution. Coles also faces a 2Q26e hurdle from DC strike benefits in 2Q25 and a diminishing contribution from new stores. We expect Liquor EBIT to decline again in FY26e.