Metcash reported a largely flat sales and EBIT result in 1H25. The stable result masks significant movement under the surface, with a good Food segment result, but weaker organic earnings in Liquor and Hardware. The path of Hardware EBIT margins will be the central debate on Metcash over the next 12 months. We estimate Hardware corporate store earnings fell 45% in 1H25, driven by a decline in sales. If Hardware is truly cyclical, then a meaningful recovery is likely. We take a more cautious stance.

We have produced a chart pack of retailer performance vs market (see PDF report). This market share report provides two insights – 1) Performance of key ASX-listed retailers compared with market growth. 2) Market structure and individual retailer performance over time. The data includes actual six-monthly growth in industry sales to end of June 2024.

Australian retail sales rose 2.6% in July 2024 year-on-year. While overall sales trends remain weak, the standout was online, which was up 14.3% with strength in both food and non-food online. Amazon’s Prime Day has had spillover effects across the market. Hardware, Liquor and Takeaway Food were in decline in July. Pharmacy and furniture had good sales growth. We expect a gradual improvement in sales growth over the next six months led by non-food retail categories.

Australian retail sales rose 2.1% year-on-year in May 2024, which is the best underlying rate of growth since November 2023. The glass half-full would suggest we may be past the trough for retail. The glass half-empty is that the rate of growth is still very weak and indicative of per capita declines in retail volumes. We do think we are now past the trough in volumes, but we don’t expect a swift recovery in retail spending.

We have produced a chart pack of retailer performance vs market. This market share report provides two insights – 1) Performance of key ASX-listed retailers compared with market growth. 2) Market structure and individual retailer performance over time. The most interesting perspective about the data in the near-term is the recent sales performance for supermarkets, hardware, liquor, and electronics. The data includes actual six-monthly growth in industry sales to end of December 2023.

Metcash reported a soft 1H24 result with sales up 1.3% and EBIT down 3.4%. The drop in EBIT was concentrated in the Hardware division and further margin pressure is likely given soft demand and rising operating costs. The Food segment has once again confounded sceptics by growing sales (ex tobacco) close to market growth and liquor is performing well. Metcash’s significant capex and acquisition outlays along with rising rates will lift finance costs over the next 18 months.

Coles reported 1Q24 sales growth of 4.7% from its Supermarket division and 1.8% for Liquor. While Coles results were weaker than Woolworths, underlying trends remain quite similar and the growth gap is likely to remain small. The challenge for Coles is that sales growth is likely to be below underlying cost growth, putting an emphasis on cost savings to protect margins.

Coles reported 3Q23 comparable sales growth of 6.5% in Supermarkets and 1.5% in Liquor. Sales trends have slowed in Supermarkets on an underlying basis and as inflation unwinds, comparable sales are likely to slip back to 4% by 4Q23e. We expect Coles Liquor to continue growing sales slower than market growth.

Coles Group reported 1Q23 sales growth of 1.3%. This is a low rate of growth, but an aberration compared with likely growth over the remainder of FY23e. The first quarter was lapping lockdowns. We expect Coles Supermarket comp sales growth to recover to 5.9% in 2Q23e and Liquor should recover to be almost flat. All of the sales growth over coming quarters will be price inflation with some modest volume declines.