Coles reported 3Q24 comparable sales growth of 4.2% for its Supermarkets. It was a good quarter for Coles. However, we expect it is a peak in growth with some transitory factors and fading inflation leading us to forecast 2.5% comparable growth for 4Q24e. Liquor had a much weaker period and sales declines are likely to continue as the industry volumes reset lower and Coles unwinds some loss-leading sales.

We expect signs of slowing sales, which reflect weak volumes and decelerating inflation. For Coles, we forecast 3Q24e Supermarket comp sales growth of 4.3%. We estimate Woolworths Food comps to rise by 1.5% and for Endeavour Retail we forecast comp sales to increase by 0.7%. While the differential in growth rates will be of interest, the bigger concern for the retailers is the continued weakness in volumes. Inflation is set to slow from here and comp sales growth could be even weaker in 4Q24e, which is a challenge for the retailers given cost growth remains far higher.

Australian inflation has accelerated significantly with retail inflation accelerating by 120bp over the past three months. The most notable step-up in prices is in supermarkets, electronics and sporting goods. The categories that are lagging are liquor, clothing and footwear. We expect inflation to rise further in calendar 2022 given the input cost pressures that are working their way through the value-chain. The question is whether inflation is within a sweet spot, providing a boost to revenue greater than the volume decline. At current levels, we think inflation is a net positive as the rate of inflation is only slightly ahead of wage growth.