Australian retail sales rose 2.1% year-on-year in May 2024, which is the best underlying rate of growth since November 2023. The glass half-full would suggest we may be past the trough for retail. The glass half-empty is that the rate of growth is still very weak and indicative of per capita declines in retail volumes. We do think we are now past the trough in volumes, but we don’t expect a swift recovery in retail spending.

Australian retail sales only rose 0.3% for December 2023. If we average November and December, given the Black Friday pull-forward, growth was still a weak 1.1%. The additional detail for December highlights a consumer that is increasingly cautious. Café & restaurant sales were particularly weak, along with liquor and all household goods categories declined.

Wesfarmers reported FY23 group EBIT of $3,863 million, growth of 6%. The result showed some signs of slowdown in the second half where retail EBIT only rose 2%. We expect sales to slow from here given recent trends and weakness in discretionary income for consumers. The company will cut costs and the margin pressure should be modest, but it will still be challenging to grow retail earnings in FY24e. The WesCEF business could see a drop in EBIT of 17% on our estimates. The core business will suffer a larger drop, but lithium earnings will start from 2H24e onwards.