Bunnings store tour and management presentation provided plenty of initiatives the retailer is pursuing to grow sales and margins, despite its large market share and high return on capital. Bunnings sales per square metre is less than half US peer Home Depot. Bunnings will add product ranges like auto, solar and cleaning to lift sales productivity. The company is positioned for margin expansion when the building sector recovers. For each 1% sales improvement, EBT could rise by 2.3% on our estimates. Bunnings also has margin upside from retail media, which could add $100-200 million in EBT over time.

Metcash reported a largely flat sales and EBIT result in 1H25. The stable result masks significant movement under the surface, with a good Food segment result, but weaker organic earnings in Liquor and Hardware. The path of Hardware EBIT margins will be the central debate on Metcash over the next 12 months. We estimate Hardware corporate store earnings fell 45% in 1H25, driven by a decline in sales. If Hardware is truly cyclical, then a meaningful recovery is likely. We take a more cautious stance.

Bunnings accounts for 63% of earnings at Wesfarmers. While a strong business with a leading market position, Bunnings faces challenges in continuing to take market share in our view. The two major areas of share gains are in online and trade. However, in order to succeed in trade and online, Bunnings may need to spend significant capex overhauling its supply chain. At this stage, we do not expect any major shift in supply chain strategy and as a result have modest sales growth and flat margins over the next three years for Bunnings.