This chart pack provides subscribers with insights about the retail operating environment and outlook for wages, floor space and profit margins. The chart pack has been compiled post the FY24 reporting season across the retail market providing fresh insights about the sector. 

Endeavour Group reported a modest lift in 3Q23 sales with improved sales in Retail still lagging the rate of inflation and the Hotel segment sales recovery driven by lower margin food and beverage sales. Endeavour should report earnings growth in FY23e, but growth may step down in FY24e as soft sales trends, weaker gaming sales and higher wage costs places pressure on profit margins.

Endeavour Group reported 1H23 EBIT growth of 16%. The result was characterised by a strong increase in profit margins in Hotels and good cost control in its Retail segment. However, when we look at performance from 1H20 to 1H23, operating cost growth has outstripped revenue growth in both Retail and Hotels. Cost growth will remain a headwind in our view over the next two years. Another unknown for investors is higher capex (or opex) associated with Endeavour’s technology transition over the next four years. We expect very limited earnings growth over the next two years as operating cost growth limits margin expansion.

Wesfarmers reported FY22 EBIT down 4%. However, as COVID-19 impacts eased, 2H22 EBIT rose by 10%. The strongest growth came from WesCEF and Kmart. Bunnings had a much stronger top line result in 2H, but its margins fell at an accelerating rate. We expect Bunnings margin pressure to persist over the next two years. Kmart’s margins should rebound in FY23e and WesCEF should have another strong year given higher prices. We expect the share price to come under pressure as Bunnings sales slow in calendar 2023.