We have updated our forecasts for the Australian retail sales outlook. Despite significant global uncertainties created by US tariffs, Australian consumers have taken it in their stride. We forecast retail sales growth for 2025 of 3.4% (prev 3.6%). Our downgrade in growth is only for supermarkets and liquor with softer volumes and price inflation. Non-food retail has started the year strongly, particularly in household goods and online. The strength in retail sales is largely attributable to strong household income growth and the drivers of this elevated growth will be difficult to sustain given the magnitude of recent tax cuts and outsized population growth. A better backdrop would require consumers to save even less. We expect sales growth of 4% beyond 2025.

The Australian retail sector imports a significant portion of products from offshore, particularly in non-food categories. In most cases, these goods are purchased in a foreign currency, which means currency volatility can impact the cost of goods and retail profits. In Issue 9 of Price Watch, we analyse the impact that changes in the Australian dollar against the US dollar (AUD/USD) can have on retail prices and profitability. A fall in the AUD/USD typically impacts retail prices with a six-month lag.

With 45% of sales in the US, Breville is in the cross-hairs of the disruption from US tariffs. In this report, we assess Breville’s relative competitive position in the US for imported products, estimate the impact tariffs could have on earnings and discuss alternatives the company may pursue. Breville is in a decent position given most imports in small appliances come from China (and other Asia). Breville could see an earnings impact of -19%, or -$38 million on our estimates from the tariffs, with lower volumes, some margin compression partially offset by lower cost of goods, marketing and staff incentives.

The much-anticipated announcement by the US Government of reciprocal tariffs creates an environment of uncertainty. For Australian consumer companies, there could be a silver lining through lower cost of goods on products sourced from China or other low-cost countries. Breville and Lovisa face some challenges given their US operations, but also stand to benefit from lower sourcing costs. Treasury Wines will face tariffs on a small part of its business importing wines from NZ and Australia, but its US business could benefit from higher prices on French & Italian wines competing with its domestic US premium portfolio.

Breville reported 1H25 sales growth of 10% and EBIT growth of 11%. The result was characterised by strong sales across all geographies and particularly in coffee machines. We expect the company to sustain good sales growth, helped by a step-up in product development, marketing and the addition of new markets including China.