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Woolworths (WOW) - 1H24 result insights

Era of elevated inflation is ending

23 February 2024

Woolworths 1H24 EBIT growth of 3% revealed a stark contrast amongst its divisions, with Australian Food EBIT up 10%, but NZ earnings down 41% and Big W down 60%. The challenge for the company is that its Australian Food sales are slowing rapidly. We also expect the outsized contribution from eCommerce and Digital & Data to moderate. The concern is lower food inflation crimping Food segment margins and a lower profit margin for Big W. With a change of CEO and weaker food inflation outlook, we expect the earnings outlook on the company to be moderated.

Inghams (ING) - 1H24 result analysis

Restoring profit margins

20 February 2024

Inghams reported 1H24 sales up 9%, gross profit up 32% and EBITDA (pre AASB-16) up 66%. The impressive result needs to be put in context given weak margins in the prior year. We expect EBITDA growth of 16% in 2H24e, with a slightly higher than usual skew of earnings to first-half as volume growth slows. We expect a smaller 6% increase in EBITDA for FY25e, largely driven by lower feed costs. Inghams good growth in FY24e EBITDA will be partly dented at EPS by a higher effective tax rate at 29%, previously 23%.  

Wesfarmers (WES) - 1H24 result analysis

Gross margin support earnings

19 February 2024

Wesfarmers reported 1% sales growth and 2% EBIT growth for 1H24. The result revealed meaningful growth from Kmart and a large decline in WesCEF. Bunnings EBIT rose by 0.4%. The primary drivers of the result were improved gross profit margins and a tight control on costs given high underlying cost inflation. For WesCEF, reduced prices in ammonia and lithium will result in a difficult 2H24e. Kmart is at peak margins and ongoing cost pressures will limit margin expansion across retail in our view.

JB Hi-Fi (JBH) - 1H24 result insights

Earnings normalisation underway

14 February 2024

JB Hi-Fi reported 1H24 sales down 2% and EBIT down 19%.  While a weak result year-on-year, profitability is well up on four years ago and on a normalisation path. Sales declines have abated more recently, but weak sales are likely for at least 12 months in our view. Gross margins are likely to soften further and operating cost growth will remain elevated. As a result, there is limited earnings growth over the next three years.

Retail sales for December 2023

Christmas soft but needs context

08 February 2024

Australian retail sales only rose 0.3% for December 2023. If we average November and December, given the Black Friday pull-forward, growth was still a weak 1.1%. The additional detail for December highlights a consumer that is increasingly cautious. Café & restaurant sales were particularly weak, along with liquor and all household goods categories declined.

Many Australian consumer companies are likely to report weak 1H24e results. However, they are likely to be better than consensus estimates with slightly better sales trends and higher gross margins in some cases. While earnings should be fine this half, share prices have run in anticipation of results and the trading updates and outlook commentary are likely to flag higher operating cost growth as a headwind.

Accent Group (AX1) Initiation

Regional expansion runway

18 January 2024

We initiate coverage of footwear and apparel retailer Accent Group. The company has store rollout potential to grow by 240 stores in four years, or a 6.6% CAGR. Moreover, the evolving product mix contributes to higher gross margins as more vertically sourced product and more higher margin apparel goods are sold. However, the company is facing rising cost of doing business coupled with a period of slowing same store sales which puts pressure on margins in FY24e. The store network growth potential and gross margin gains will help lift margins in FY25e and more so in FY26e.

Post-Christmas retail feedback 2023

Festive enough

08 January 2024

Australian retailers have had a decent Christmas in 2023, particularly compared with low expectations amongst retailers and investors. Supermarkets traded solidly and electronics demand improved from very weak levels. Liquor and apparel are still trending at very low rates of growth. There is consensus upgrade risk to retailers, particularly Harvey Norman and Super Retail Group. While sales trends are slightly better, the strength of gross margin is the most significant driver of better earnings. The retailer where feedback has shifted most positively is Harvey Norman.

City Chic (CCX) AGM 2023 trading update

Inventory clearout almost done

23 November 2023

City Chic’s trading update showed that sales trends remain weak, but the company is rapidly clearing excess inventory. The sales declines are likely to ease by the end of calendar 2023. Gross margins could recover by 20 percentage points in 2H24e. City Chic’s past mistake of excess inventory is being corrected.

Treasury Wine (TWE) FY23 result analysis

Revenue growth the focus from here

18 August 2023

Treasury Wines reported FY23 EBITS up 11%. The second-half rose by 6%. While the profit result was decent, the sales performance was poor, particularly in the Americas. Margin targets have largely been met and the company needs to kick start revenue growth from here. We expect revenue to rebound in 2H24e. The lower Australian dollar will represent a meaningful contribution to the achievement of “high single-digit” EBITS growth in FY24e.  The key share price driver remains an unwind of tariffs in China, which may happen within the next six months.

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