Harvey Norman’s 19% fall in 1H24 EBITDA is likely a trough in earnings. As sales stabilise, we forecast EBITDA to increase 4% in 2H24e. While sales should stabilise, we expect very modest growth in its two largest markets – Australia and NZ. Profit margins should improve, albeit margins are on track to be above pre COVID-19 levels by June 2024 limiting the pace of earnings growth over the next two years. One encouraging sign is reduced inventory in its franchising business. Inventory is back to pre COVID-19 levels.

Metcash reported FY22 sales of $17.4 billion and EBIT of $472 million. Adjusting for the 53-week in FY22, sales rose 4% and EBIT rose 16%. The results reflects higher price inflation across all divisions and a mix-shift towards the Hardware division, which has higher margins. Metcash has been able to hold onto much of its customer gains made during COVID-19. While we expect a lack of EPS growth over the next two years, the company’s competitive position has improved in each division.