Australian retail sales rose 3.6% in February 2025 year-on-year adjusted for the leap year in 2024. The growth rate near 4% has been largely consistent for the past 5 months. Most drivers of spending are becoming more favourable – tax cuts, rate cuts and lower cost of living pressures, which influences our view that retail spending will continue near 4% over 2025.

Myer reported flat sales, but EBIT down 15% in 1H25. Sales were impacted by issues at the new National Distribution Centre (NDC) which shifted the sales mix to lower gross margin concession product. The trading update showed a flat start to the second-half. Earning will be largely driven by synergies and cost out initiatives over the next 2-3 years.

We have initiated coverage of Myer (MYR), a domestically focused department store retailer with an industry leading loyalty program, a $700 million online business and a national store footprint of over 50 stores. Myer department stores have a value proposition in the in the mid to high value range. While the merger of Myer and Premier Apparel Brands builds scale, the combined business has weak sales trends and thin margins. Earnings growth in the next three years is driven by the delivery of synergies. The combined group will then grow modestly unless we see the exit of one or more competitors. Any misstep in achieving the synergies will not be well received in our view. 

Premier Investments has provided a trading update stating FY24e sales will be $1.60 billion and Retail EBIT (pre AASB-16) at $326 million. The result suggests 2H24 sales fell by 2% with EBIT down 15%. Weak sales trends are likely across the board, with Peter Alexander sales per store and Smiggle soft too. The weaker 2H24 EBIT margin decline is a function of operating cost growth exceeding sales growth in our view.