Super Retail Group provided a trading update to mid-October 2023 which revealed sales conditions improved slightly and gross margins are steady. The downturn in retail sales is proving orderly and predictable for many retailers. Super Retail’s net cash position provides the option to pay out another special dividend.

Bapcor’s AGM trading update revealed weaker sales trends and margin pressure early in FY24e. There are some macro headwinds, but not the only factor in our view. We also expect softer sales trends to persist as price inflation eases and new car sales recover. Bapcor is raising prices and cutting costs, which should improve the earnings run-rate for the remainder of FY24e. Even so, there will be a heavy reliance on cost savings to ensure a flat NPAT outcome.

Premier Investments FY23 result revealed a slowdown in sales and gross margin pressure in the second-half. The company found sufficient flexibility in its cost base to soften the 2H23 EBIT decline to only 4%. For FY24e, we expect weaker sales, lower gross margins and more cost inflation.

City Chic had an incredibly challenging FY23. Sales declined and gross margins were crushed. The company made an EBITDA loss (pre AASB-16) of -$35 million for the continuing business.  However, there is light at the end of the tunnel. The sales decline should abate by the end of 1H24e. The company has a net cash position and a clear path to profit margin recovery over the next three years.

Woolworths reported FY23 sales up 6% and EBIT up 16% and the result  was characterised by a return to more normal trading patterns. EBIT was up 3% excluding the impact of an unwind of COVID-19 costs in the prior year. The Woolworths Food division had a strong improvement in margins, which bodes well for FY24e and its investments in adjacencies is supporting higher margins than major peer Coles. We expect elevated capex to continue over the next two years given supply chain investments, which should deliver a return.

Australian supermarket sales are at a record low as a share of total food spending. Dining out is winning share of spend and the same is true for the US and NZ. Our research shows that employment growth, inbound tourism and savings tend to be well correlated with dining out spending and all still point to solid growth. Supermarket prices have also risen faster impacting its relative affordability. Dining out is bound to slow, more so in 2024 than now and unfortunately for supermarkets any uptick in volume may be more than offset by a fade in inflation.

Super Retail Group reported FY23 EBIT growth of 10%. For the second-half EBIT dropped by 4%. Sales trends have held up well so far and the company has reduced its inventory. However, conditions are likely to be more challenging over the next year. As a result, profit margins will fall. The company will also have rising overheads and costs associated with its loyalty program in FY24e.

Treasury Wines reported FY23 EBITS up 11%. The second-half rose by 6%. While the profit result was decent, the sales performance was poor, particularly in the Americas. Margin targets have largely been met and the company needs to kick start revenue growth from here. We expect revenue to rebound in 2H24e. The lower Australian dollar will represent a meaningful contribution to the achievement of “high single-digit” EBITS growth in FY24e.  The key share price driver remains an unwind of tariffs in China, which may happen within the next six months.

Endeavour Group reported FY23 sales up 2% and EBIT up 11%. The debate is whether the company can cut costs sufficiently to ensure profit margins do not fall in FY24e. The company faces cost growth of 7% on our estimates and sales growth is more likely to be 4%. While a combination of gross margin gains in its Retail division and some cost savings should help, we expect modest margin compression. Another headwind in FY24e will be higher net interest costs.

Bapcor reported strong FY23 revenue growth of 10% with EBITDA rising 3% for the full year. In the second-half sales grew 8% with EBITDA down 2%. Risks to Bapcor are focused on the impact of higher wages, plus increasing rent and overheads. The cost out program announced in November 2022 will help to mitigate these cost pressures. Bapcor enters FY24e with an improved inventory position after reporting a strong cash realisation in FY23. The sales growth trajectory is likely to soften from here as same store sales start to normalise.