Retailers and investors perceive certain retail categories as defensive. Typically, the implied definition of defensiveness centres around the stability of demand, as measured by volumes. However, this perspective is far too narrow given the impact price and cost structures can have on a retailers’ profitability. In Issue 7 of The Retail Mosaic report, we analyse the volatility of volumes, price and dissect the cost structures of the retailers. We also analyse the share price volatility of retailers. Moving beyond just volume as the measure of defensiveness reveals a very different list of companies that are truly defensive. The most defensive retailers, taking into consideration, revenue, earnings and share price are Premier Retail, Wesfarmers, Woolworths and Bapcor.

Super Retail Group reported FY22 sales up 1% and EBIT fell by 18% (52-week basis). While a fall, earnings are still well above pre COVID-19 levels and sales trends have started FY23e strongly. We expect a good 1H23e but weaker 2H23e as broader retail spending trends slow. Gross margins are likely to fall a little further and negative operating leverage could be evident in FY24e.