Coles reported 1H25 EBIT up 5% with a stronger lift in its Supermarkets division of 7%. The company had solid sales trends, which partly reflected a benefit from Woolworths DC strikes. Underlying sales and EBIT growth in the Supermarket business is closer to 3%-4%. Cost savings and DC efficiencies are offsetting natural cost inflation, not boosting margins. Over the next 18 months, Coles will benefit from the unwind of transition costs that will lead to double-digit EPS growth.

Woolworths reported sales up 4%, but EBIT down 14% in 1H25. We expect the company will have a challenging 2H25e as well. Management is starting to address its challenges. CEO, Amanda Bardwell, said that the company will assess the shape of its business portfolio. Each business unit must have reasonable prospects on a 3-5 year view. Overhead costs are being cut and there is a tougher stance on the low returning Big W and NZ divisions.

Accent Group reported 1H25 EBIT of $81 million, up 11%. The gross margin deterioration of 100bp owing to promotional intensity lead us to lower full year expectations. The nearing maturity in the store opportunities for Platypus and Skechers see us lowering our long term store forecasts by 4.5%. We incorporate an upside case in our valuation for a deal with Frasers Group.

Australian retail sales rose 4.0% in December 2024, with some notable outliers across segments. Electronics was up 11%, furniture up 8% and pharmacy up 7%. On the other hand, department stores, supermarkets, liquor and recreational goods were all very soft. Some of the shifts reflect the baseline with December compound annual growth rates actually slower than November for all categories other than hardware and liquor.

Australian retail sales rose 4.1% in November 2024. In non-food retail, sales were up 4.0%, while the CAGR growth over five years was 7.3%. November benefited from a bigger Black Friday event but also from warmer, drier weather. Supermarkets, liquor, fashion and cafes/restaurants all had much stronger growth. The sales trends have improved in recent months, which may be a little stronger than true trends because of favourable weather and the heavier discounts enticing shoppers. We expect some softness in the March 2025 quarter.

Australian retailers have had a good Christmas. Even with a bigger Black Friday, consumers were in the mood to spend at Christmas and a late surge in sales is likely to lead to good growth. Sales trends are likely to be at least 1% better than the September quarter. In addition to good sales, few retailers are complaining about margins. While sales growth has been good, margins are already high and cost growth is elevated.

Woolworths is having a challenging time in its core supermarket business. The recent distribution centre strike will impact sales and earnings in 2Q25e, but should dissipate. More fundamentally, the company’s price investment is unlikely to deliver a decent return and online sales are margin dilutive. Across the industry, the drop in supermarket inflation gives us cause for concern about the industry’s sales and margin outlook over the next two years. While a short-term winner from the strikes, broader industry sales weakness will make it hard for Coles to deliver decent sales growth in 2025.

The outlook for retailers this festive season is constructive. Perhaps it is best characterised as a sign of the times where consumers are acting cautiously but do have money to spend. Therefore discounts are working. Black Friday event sales were likely up 4%-7% for many retailers based on our feedback. We expect the strongest growth was online. Amazon took share. Home appliances, fashion and beauty have done best. However, there are more discounts.

Australian retail sales rose 3.8% year-on-year in October 2024. It was a strong month for non-food retail up 5.1%, which is above long-term trends. It is uncommon for non-food to outperform, but the combination of good household income growth and a softer September has brought out shoppers. Pharmacy, cosmetics, recreational goods and online were the strongest growing categories. Our feedback on Black Friday sales suggests November will show solid growth too. We may see some weakness in December as promotional fatigue sets in.

Lovisa’s AGM trading update revealed weakening sales trends and a slower pace of net new store openings. We expect to see a year of slower store openings, influenced by the CEO transition period being so drawn out. Increasing competition and promotional activity weighs on margins.