Bapcor reported 1H25 underlying sales up 0.3% and EBITDA of $132 million, down 8%. Sales have started the second half up slightly. The full year cost saving guidance for $20 to $30 million has been reiterated and will lead to lower total costs in 2H25e, supportive of an improvement to EBITDA. Bapcor will host a Strategy Day in late April 2025 at which the new CEO will provide more clarity on the strategic direction.

Inghams reported 1H25 poultry volumes down 2.7% and EBITDA dropped 10%. Price realisation was good and Inghams had feed cost reductions and admin cost savings to partly offset the volume decline. Prices are 19% higher than three years ago. This is important as it signals that new contract wins to replace lost volume with Woolworths has not been done at irrational prices.

Inghams reported FY24 EBITDA of $240 million pre AASB-16, growth of 29% (on 52-week basis). While the result was good, second-half earnings growth was soft and the company revealed that Woolworths will cut back volumes with Inghams to diversify its supplier risk. We expect Woolworths’ FY25e volumes will fall 10%-20% with Inghams. Lower feed costs are a strong tailwind for FY25e and should offset much of the headwind from lower Woolworths volumes.

Bapcor reported FY24 sales of $2.03 billion up 1% and EBITDA of $269 million down 10%. Net profit fell by 24% pre significant items on higher interest costs. The company reported a small improvement in sales early in FY25e. However, the drop in 2H24 profit margins is likely to result in only modest EBITDA growth for FY25e even though the company has cost savings to flow through. During the second-half all Bapcor’s divisions had negative same store sales performance with Trade down by 1.5%, Retail down 1.0% and New Zealand lower by 0.5%.

Inghams strategy day provided an upbeat tone about the opportunities to improve its sales mix and capex projects that will lift profit margins. The company is targeting double-digit EBITDA margins over time, which would be a 25% lift on our base case of 8%. Given a favourable industry structure, higher margins are possible.

City Chic had an incredibly challenging FY23. Sales declined and gross margins were crushed. The company made an EBITDA loss (pre AASB-16) of -$35 million for the continuing business.  However, there is light at the end of the tunnel. The sales decline should abate by the end of 1H24e. The company has a net cash position and a clear path to profit margin recovery over the next three years.

Harvey Norman reported a 2% increase in system sales but a 7% drop in group EBITDA for 1H23. The result showed margin pressure from increased discounting across its businesses. The deterioration in its recent sales trends suggests it will be a tougher 2H23e and FY24e in our view. An added risk for Harvey Norman is the higher than usual franchisee inventory holdings, which could squeeze margins further over the next 12 months. We expect margins to largely normalise to pre COVID-19 levels as sales slow and discounting levels increase.

City Chic’s 1H23 result shows the financial cost of its elevated inventory position. The second-half will also be loss-making based on our forecasts. However, the more fundamental question is the magnitude of its recovery in profit margins and the path to a net cash position. Both seem likely. However, investors will need patience. While still facing a challenging six months, conditions are likely to improve.

Wesfarmers reported a strong 1H23 result with EBIT up 13% to $2,160 million. The strength largely reflects good retail earnings and higher chemical and fertiliser prices. Even so, Bunnings profit margins declined and the good group result was partly overshadowed by a very large loss for Catch Group. The prospect for earlier lithium sales will help earnings in FY24e, although project capex is higher.

City Chic’s 2022 AGM trading update highlighted a normalisation in sales and squeeze in profit margins for FY23e. We expect FY23e EBITDA pre AASB-16 to fall to $19 million. While a low point, profitability should recover as the industry-wide inventory position normalises over the next year. We have structurally dropped our sales forecasts given Avenue looks to be resetting sales lower like many online businesses. We expect EBITDA margins to trough at 5.6% this year and recover to 11.8% by FY25e.