City Chic’s 2022 AGM trading update highlighted a normalisation in sales and squeeze in profit margins for FY23e. We expect FY23e EBITDA pre AASB-16 to fall to $19 million. While a low point, profitability should recover as the industry-wide inventory position normalises over the next year. We have structurally dropped our sales forecasts given Avenue looks to be resetting sales lower like many online businesses. We expect EBITDA margins to trough at 5.6% this year and recover to 11.8% by FY25e.

Harvey Norman has provided an AGM update that reflects the strength of the consumer in many of its markets. Australian comparable sales rose 8.8% and the three-year CAGR is 8.0%. Slovenia and Ireland are also very strong. Given good sales results, we expect profit margins to only fall slightly in FY23e. If Harvey Norman can reduce its inventory levels in an orderly manner, the margin compression could be less than feared.

City Chic’s high inventory position has made investors nervous. We acknowledge the risk but feel that the combination of solid demand for fashion in its key markets, and a return to a net cash position is appealing. It won’t be a smooth ride for investors, but the company should emerge over the next 12 months with a stronger position in global plus-size fashion market and a net cash position.

Super Retail Group’s trading update showed very strong sales for the first 16 weeks of FY23e. Sales are elevated given lockdowns dragged down sales last year. Even so, the three-year average growth rates are high single-digit at least, reflecting strong consumer demand and higher prices. We expect sales to slow from here and are therefore fundamentally cautious on the stock.

JB Hi-Fi reported a very strong 1Q23 sales trading update, which was elevated given the period lapped lockdowns last year. The three-year average growth rates are mid to high single digits reflecting sustained consumer demand and support from both price inflation and mix. We expect sales momentum to slow in 2Q23e as the company laps a more normalised sales base. We forecast 2Q23e comp sales for JB Hi-Fi Australia at 4.4% and The Good Guys at 3.3%. Given we expect a sales slowdown from here, we are more cautious on the stock.

Domino’s share price has fallen a long way in 12 months. In just the past two months, the stock is down 29%. The main concern is European earnings. We agree and consensus may be 5%-10% too high for FY23e. Within the next six months, the company has enough flexibility to manage its costs and may start to see some cost recovery through pricing.

While Premier Investments reported flat FY22 EBIT, it was a strong 2H22 with EBIT up 23%. The company had very strong second-half sales growth and gross margins expanded. We expect strong sales to persist in 1H23e, but then we are cautious about calendar 2023. Sales growth may turn negative in 2H23e and FY24e on our forecasts even with good growth plans for Peter Alexander. Moreover, wages and rents are likely to be a source of margin compression.

Harvey Norman reported a 7% drop in FY22 EBITDA. However, 2H22 EBITDA rose 4% given better sales trends across most divisions. The stronger sales trends are likely to help 1H23e earnings as well. However, the sales environment is likely to be more difficult across calendar 2023 and we forecast earnings to fall. We are also more cautious given Harvey Norman may continue to hold elevated inventory levels.

City Chic reported FY22 EBITDA of $47 million (pre AASB-16), up 11%. The result was characterised by very strong revenue growth, but margin dilution from lower margin acquisitions and higher fulfillment costs.  We expect sales growth to slow in FY23e to 6% as online demand normalises globally. We see further downside in gross margins given higher fulfillment costs seen in 2H22. We forecast FY23e sales of $392 million and EBITDA of $50 million. We have lifted our EBITDA forecast slightly from $49 million previously.

Domino’s reported FY22 EBIT of $263 million, down 10%. The result showed a slowdown in network sales growth and reduction in profit margins given continued cost growth. The company has said trading improved early in FY23e and it will look to raise prices in Europe to deal with higher costs. We expect sales to remain subdued in 1H23e and are cautious about European margins given consumers may have less disposable income. The upgrade to FY24e reflects the acquisition of additional Asian territories and low-cost debt funding.