We initiate coverage on dusk, an Australian specialty retailer of Home Fragrance Products, offering a range of dusk branded products at competitive prices from its physical stores and online store. We see dusk pushing plans to improve sales productivity through new product development, category expansion, increasing the release rate of new product and the opening of more metro stores. 

The more alarming features of Bapcor’s trading update are the rapid deterioration in sales and immediate departure of three board members. While somewhat “glass half-full” we interpret the FY25e trading update as more a “clean out” of the financials and a reset. Management targets over FY25e to FY30e will be easier to achieve.

The Australian consumer sector is likely to report a wide divergence in fortunes this reporting season. Even though sales trends are improving, operating cost growth is elevated and gross margin gains are fading. The companies with the best earnings growth for FY25e are likely to be Breville, GyG, Harvey Norman, Lovisa, Sigma and Treasury Wines. For most of these, consensus expectations are already high and commentary on current trading and costs will influence share prices. At the other end, retailers with double-digit declines in earnings are Endeavour, Myer, Nick Scali and Woolworths.

Ampol’s 2Q25 trading update showed improving margin performance across the majority of its segments. Refinery margins in diesel have lifted globally and its convenience operations in Australia & NZ are seeing improving fuel margins. While conditions are good, the EBIT momentum is in line with our thinking.

Australian inflation for the June 2025 quarter has dropped further to 2.1%. In retail categories, the rate of price inflation has remained largely unchanged overall. However, there are a number of sub-sector distinctions of note. Packaged grocery inflation ticked up in the June quarter and electronics deflation eased. Hardware prices are now in decline, pharmacy prices have flat-lined and sporting goods are in deflation too.  The direction of retail inflation is likely to be lower over the next 12 months, helping affordability, but hurting retail sales growth. The benefit of lower inflation on interest rates is positive for retail outlook, but we view the magnitude of the impact as over-hyped. We expect retail sales growth to improve to 3.9% for FY26e, up from 3.3% in FY25.

Australian retail sales finished fiscal 2025 with 4.6% growth for June 2025, the strongest growth in over two years. The standouts were online, recreational goods, pharmacy, cosmetics and electronics. Liquor, cafes & restaurants and supermarkets were all laggards. The strong finish to the year partly reflects end of financial year sales. Retail spending for FY25e was up 3.3% and we see 3.9% growth for FY26e.

The link provides a presentation associated with a webinar we held. The webinar addressed our retail sales forecasts for FY26e. The outlook remains constructive for retail spending in FY26e, interest rates are falling and tax cuts are providing stimulus for households, but population growth is slowing and income growth may not rise further from here. We assessed the willingness of consumers to dip into savings to drive retail spending higher.  

Australian retail sales growth has been on an improvement path since March 2024. Retail sales growth for FY25 was 3.3%, better than the 1.8% in FY24. We see retail spending accelerating further to 3.9% in FY26e. Why not a stronger improvement given interest rate cuts? Given tax cuts and strong wages growth during FY25, income growth will actually slow in FY26e making it hard to see much acceleration in retail sales. If retail growth is stronger than our forecast in FY26e, it is likely driven by households dipping into savings if house prices rise substantially.

We initiate coverage on Noumi, an Australian fast-moving consumer goods company specializing in the production, marketing, and distribution of dairy and plant-based beverages, nutritional products, and functional ingredients. Noumi has state-of-the-art facilities for the production of UHT and plant-based milk products with capacity to service export market growth opportunities. There is upside potential from new product development and improved yield efficiency.

Australian retail sales rose 4.1% in May 2025 year-on-year. This is an acceleration on the combined March-April growth of 3.6%. Foot traffic data for May reported growth of 8%. Pharmacy, beauty, recreational goods and online were strongest in May. Weaker categories were liquor, cafes & restaurants and furniture, albeit all were positive in the period.