Harvey Norman reported 15% EBITDA growth in 1H26. Sales growth was solid in both the key markets of Australia and New Zealand and profit margins expanded with better cost control. Harvey Norman’s sales trends are likely to slow in Australia and NZ over the next 12 months, but we expect it to be a mild slowdown. The improved inventory position for franchisees bodes well for margin expansion in 2H26e.

Breville reported strong constant currency sales growth of 9% in 1H26, but tariff headwinds resulted in an almost flat EBIT result. Sales momentum may soften a little as the retailer sell-in eases and price inflation drops over 2026. We expect the company to maintain a tight control on costs in 2H26e to meet EBIT guidance of “slight” growth. The continued growth of the coffee category, new product launches and new markets support ongoing EBIT growth near 10%, noting the company does face a headwind from a stronger Australian dollar in FY27e.

Australian inflation accelerated for the December 2025 quarter. Even the trimmed mean popped to 3.4%, above the RBA’s target of 3.2%. Financial markets are pricing in a strong chance of a rate hike in February 2026. We are less convinced. While broader inflation has increased, retail price inflation is largely steady at 2.1%. Liquor inflation stepped down. Electronics, hardware, furniture and sporting goods prices were in decline. The outlook for retail inflation is lower over the next 12 months given a higher Australian dollar and lower input costs.

We have reviewed the US price and volume backdrop for Breville. Price rises put through in August 2025 look like they have stuck, albeit December was very promotional. Price rises of 3% will be partly offset by lower volume growth in our view. Breville’s 1H26e EBIT could rise by 4% with the tariff impacts only affecting three months of the period. We expect flat EBIT in FY26e.

Australian retail inflation is proving volatile overall, but it is subsiding in retail, which does present downside risk to retail sales growth.  In the September 2025 quarter overall CPI was 3.2% while retail inflation was 2.4%.  Non-food retail inflation has dropped to 0.3% on our calculations, with further downside likely over the next year. The combination of higher inflation across the economy and weaker inflation in retail products is not helpful for retailers. Lower retail inflation constrains sales growth, while the RBA is likely to delay any rate cuts given higher living costs.

Harvey Norman reported FY25 PBT growth of 9% with much stronger growth of 19% in 2H25. Sales trends are strong at the start of FY26e, which bodes well for the year ahead. However, the company was lapping a weak result from a year ago. We forecast FY26e comp sales growth of 4.5% for Australia and 6.0% for New Zealand. With better sales, what profit margin upside can we expect? Given Harvey Norman’s margins are near long-term average and cost growth may rise in FY26e, we expect the operating leverage to be a little lower than usual. PBT margins may rise 70bp. We forecast group network sales growth of 6% and PBT growth of 18% in FY26e.

New Zealand has been a challenging retail market for most companies over the past 18 months. However, there are clear signs retail sales are likely to improve. Rate cuts of 250bp that began in August 2024 are starting to boost incomes and recent sales trends have been stronger. We expect NZ retail spending to rebound to 3.6% growth in FY26e, up from 0.6% growth in FY25. The three retailers with the largest sales exposure and upside to better NZ sales trends are Ampol, Harvey Norman and Bapcor.  NZ could account for 2%-3.5% in operating profit growth for these companies.

Breville reported 10.2% EBIT growth for FY25, with slightly weaker growth in 2H25. The key debate on this company is the magnitude and timing of the impact of US tariffs on its earnings. We expect the combination of tariffs with some offsetting cost savings to result in a slight lift in FY26e EBIT to $206 million. The tariff headwinds will continue into FY27e because of its inventory cycle and temper EBIT growth in that year as well. We forecast FY27e EBIT of $220 million. Beyond FY27e, the company should return to 7%-10% EBIT growth.

Australian inflation for the June 2025 quarter has dropped further to 2.1%. In retail categories, the rate of price inflation has remained largely unchanged overall. However, there are a number of sub-sector distinctions of note. Packaged grocery inflation ticked up in the June quarter and electronics deflation eased. Hardware prices are now in decline, pharmacy prices have flat-lined and sporting goods are in deflation too.  The direction of retail inflation is likely to be lower over the next 12 months, helping affordability, but hurting retail sales growth. The benefit of lower inflation on interest rates is positive for retail outlook, but we view the magnitude of the impact as over-hyped. We expect retail sales growth to improve to 3.9% for FY26e, up from 3.3% in FY25.

Australian inflation for the March 2025 quarter was 2.4% continuing a trend of decelerating inflation in the past year. Lower petrol prices and energy bill subsidies are helping. In retail, there was pick up in supermarket inflation, largely for meat and fresh produce. For non-food retail, there was deflation in a range of categories such as electronics, hardware, sporting goods and footwear, which may signal some margin pressure. With some input cost pressures and a lower Australian dollar, retail inflation is more likely to tick up from here. The trimmed mean inflation of 2.9% is instructive for the upcoming wage decision by the Fair Work Commission and may see retail wage rate growth of 3.3% to 3.7% for FY26e in our view.