This chart pack provides subscribers with insights about the retail operating environment and outlook for wages, floor space and profit margins. The chart pack has been compiled post the FY24 reporting season across the retail market providing fresh insights about the sector. 

Premier Investments has provided a trading update stating FY24e sales will be $1.60 billion and Retail EBIT (pre AASB-16) at $326 million. The result suggests 2H24 sales fell by 2% with EBIT down 15%. Weak sales trends are likely across the board, with Peter Alexander sales per store and Smiggle soft too. The weaker 2H24 EBIT margin decline is a function of operating cost growth exceeding sales growth in our view.

Accent Group reported FY24 EBIT of $128 million, adjusted for impairment, down 1% against a 52-week comparable. The trading update of like-for-like sales of 3.5% was a slowdown on the 4.1% achieved in 2H24. A lower 2H24 gross margin, explained by an inventory write-down, was in contrast to the 136bp gross margin improvement in 1H24. Given positive trading momentum, structural gross margin improvement strategy and the exit of underperforming banners and sites we see Accent Group growing earnings by a 9.5% CAGR over the next 3 years.

Accent Group provided a trading update and details around the planned closure of 17 stores operating under the Glue Store banner. The company highlighted strong second half like-for-like sales trends at 4.1%. This strong performance into the second half of the year was ahead of consensus at -0.4% for 2H24e. The store closures will lower group sales but we lift our gross margin expectations and see improved cost of operations from exiting a portion of the higher cost Glue Stores.

Metcash reported FY24 EBIT down 1% and, adjusted for acquisitions, it was a similar result in both the first and second-half. The company is actively managing costs to offset weak sales trends and this thematic is likely to be a feature again in FY25e. Metcash’s performance relative to market growth remains impressive and is the primary reason for our positive stance on the stock.

Bapcor provided a trading update with detail on the sales growth for the nine months to 31 March 2024 and guided to FY24e proforma NPAT of $93-97 million. Sales trends for the nine months were mostly lower than the 1H24 sales trends. The fundamental debate remains the outlook for the cost saving program (Better Than Before). Management instability makes it difficult to see the cost savings being delivered anytime soon and the net benefits may be far smaller than the gross $100 million savings.

Inghams provided a trading update for 1H24 suggesting EBITDA pre AASB-16 is on track to rise 67% for the half. The company has seen improved volumes and some cost pressures have eased. Given prices are trending up 10% for its poultry, Inghams is seeing meaningful margin recovery. The company is on track to return to 8%+ EBITDA margins this year, which is just below pre COVID-19 levels of 8.5%. We lift our EBITDA forecasts by 23% in FY24e and 10% in FY25e. The unknown is where margins peak. Past investments have been made to improve operational efficiency, but the magnitude of price rises may mean EBITDA dollars are much higher than pre COVID-19 but percentage margins less so.

Harvey Norman provided a trading update informing the market that sales are in decline, profit is down almost 50% so far and it will consider buying back shares. Harvey Norman is undergoing a rapid reset of earnings post COVID-19. The concern on our mind is the loss of market share in Australia and NZ over the past four years. The unknown is how much of its weaker sales and earnings is a function of excess inventory. Earnings are likely to trough this year, but the recovery may underwhelm, particularly as its retail property is revalued lower.

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.

Harvey Norman provided an earnings guidance range for FY23e with the mid-point at $670 million profit before tax (pre revaluations and AASB-16). The guidance suggests 2H23e earnings have halved, which doesn’t bode well for FY24e. Harvey Norman’s earnings drop is likely to be more severe than rivals given its elevated inventory and franchising model. The company has also lost market share. We expect a trough in margins in FY24e with a partial recovery in FY25e.