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Premier Investments FY22 result

Pyjama party almost over

01 October 2022

While Premier Investments reported flat FY22 EBIT, it was a strong 2H22 with EBIT up 23%. The company had very strong second-half sales growth and gross margins expanded. We expect strong sales to persist in 1H23e, but then we are cautious about calendar 2023. Sales growth may turn negative in 2H23e and FY24e on our forecasts even with good growth plans for Peter Alexander. Moreover, wages and rents are likely to be a source of margin compression.

Harvey Norman (HVN) FY22 result insights

Precipice may be on the horizon

01 September 2022

Harvey Norman reported a 7% drop in FY22 EBITDA. However, 2H22 EBITDA rose 4% given better sales trends across most divisions. The stronger sales trends are likely to help 1H23e earnings as well. However, the sales environment is likely to be more difficult across calendar 2023 and we forecast earnings to fall. We are also more cautious given Harvey Norman may continue to hold elevated inventory levels.

Wesfarmers (WES) FY22 result

Good 2H, but Bunnings costs rising

30 August 2022

Wesfarmers reported FY22 EBIT down 4%. However, as COVID-19 impacts eased, 2H22 EBIT rose by 10%. The strongest growth came from WesCEF and Kmart. Bunnings had a much stronger top line result in 2H, but its margins fell at an accelerating rate. We expect Bunnings margin pressure to persist over the next two years. Kmart’s margins should rebound in FY23e and WesCEF should have another strong year given higher prices. We expect the share price to come under pressure as Bunnings sales slow in calendar 2023.

Woolworths (WOW) FY22 result insights

A rebound in margins is coming

27 August 2022

Woolworths reported FY22 EBIT down 1%. However, 2H22 was encouraging with EBIT up 8%. Australian Food had higher gross margins and improved cost management. Food inflation remains a tailwind for sales and earnings. We expect a tough 1Q23 in sales for Australian Food but then a recovery, and profit margins should rise substantially this year given lower COVID-19 costs and gross margin gains. There are partial offsets from weaker EBIT in NZ which is largely COVID-19 related and much higher overheads.

City Chic (CCX) FY22 result insights

A phase of lower growth

27 August 2022

City Chic reported FY22 EBITDA of $47 million (pre AASB-16), up 11%. The result was characterised by very strong revenue growth, but margin dilution from lower margin acquisitions and higher fulfillment costs.  We expect sales growth to slow in FY23e to 6% as online demand normalises globally. We see further downside in gross margins given higher fulfillment costs seen in 2H22. We forecast FY23e sales of $392 million and EBITDA of $50 million. We have lifted our EBITDA forecast slightly from $49 million previously.

Domino's Pizza (DMP) FY22 result insights

Normalisation is on-going

26 August 2022

Domino’s reported FY22 EBIT of $263 million, down 10%. The result showed a slowdown in network sales growth and reduction in profit margins given continued cost growth. The company has said trading improved early in FY23e and it will look to raise prices in Europe to deal with higher costs. We expect sales to remain subdued in 1H23e and are cautious about European margins given consumers may have less disposable income. The upgrade to FY24e reflects the acquisition of additional Asian territories and low-cost debt funding.

Coles (COL) FY22 result

COVID unwind to boost margins

26 August 2022

Coles reported FY22 EBIT of $1,869 million, down 0.2%. The result had some lower quality features to deliver net profit growth including low deprecation growth, a lower tax rate and the unwind of some provisions. We expect Supermarket and Express to see an improvement in EBIT margins in FY23e. The unwind of COVID-19 costs is the most significant driver, accounting for well over half the earnings growth.

Endeavour (EDV) FY22 result insights

Trade-offs in normalisation path

25 August 2022

Endeavour Group reported FY22 EBIT up 3%. Even though the operating environment is now normalising, we expect pressure on gross profit margins to keep a lid on earnings growth in FY23e. Retail gross margins are likely to fall in 1H23e and higher gaming taxes will detract from the earnings recovery in Hotels.

Inghams (ING) FY22 result

Tough times to persist a little longer

22 August 2022

Inghams had a difficult FY22 with EBITDA pre AASB-16 of $135 million, down 35%. The worst of its disruptions are likely in the past. However, both higher feed costs and increasing operating costs are likely to still weigh on earnings in 1H23e. We expect 1H23e EBITDA to fall 9% and there is a good chance that its net debt to EBITDA rises to above 2.0x.

Treasury Wine (TWE) FY22 result insights

Gross margin driven growth

22 August 2022

Treasury Wines reported FY22 EBITS of $524 million, an increase of 3%. EBITS remains above FY20 levels, which is an important threshold given the loss of China earnings over this time period. The tone of management’s presentation signalled the worst of the company’s challenges are behind it and there are many layers to growth. We agree and were encouraged by the improvement in gross profit margins for FY22, particularly in the second-half.

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