Lovisa has extended its CEO contract for Victor Herrero to May 2025. John Cheston will be appointed as successor to take Lovisa at the start of FY26e. Mr Cheston comes from Premier Investments as Managing Director of Smiggle, overseeing its expansion into foreign markets over the last decade. With the change to CEO, we lower our Lovisa store rollout forecast in FY25 by 50 stores largely effecting the probability of an accelerated China rollout.

Australian retail sales rose 1.2% in April 2024. To adjust for the noise of the timing of Easter we also look at the combined March-April results which shows sales growth of only 1.3%. Department stores and fashion have had the most notable slowdown over the Easter trading period. Supermarket sales are also soft considering data suggests higher inflation in March-April. We forecast subdued retail sales growth trends to continue to June 2024, with a mild pick up for the back-half of calendar 2024.

Domino’s investor trip to Germany and France highlighted the role of online food aggregators is significant and partly explains the weakness in France and strength in Germany. Franchisee profitability can lift with higher order count which will be driven by product innovation and growth on the aggregators. While we are more positive, we have two notes of caution. Firstly, we expect the company to step back from the timelines for its long-term store growth and store growth may be 3%-5%, not 7%-9% per annum. Secondly, consensus expectations for sales growth and margin expansion need to be lowered over the next three years.

Australian supermarket volumes are likely to drop by 2% in FY24e on a per capita basis, which is a continuation of declines seen since March 2022. While higher food prices may explain some of the softness in volumes, other factors are at play including channel leakage, lack of store refurbishments and less new product innovation. We forecast 3.0% comparable sales growth for the supermarket sector in FY25e, but a downside case of 2.3% is possible if volumes continue to decline. A low rate of comp sales growth would be very challenging given comp cost growth is unlikely to fade. Weaker comp sales will put downward pressure on Coles and Woolworths profit margins.

This chart pack provides a range of insights about the online market in Australia including market size by category and penetration rates for a wide range of retailers. Three key insights from our analysis are – 1) Online retail growth is moderating, with the step down to single-digit growth impacting our forecasts for long-term share of sales. 2) Online retailers have shifted their focus to profitability, reducing the consumer appeal of online. 3) Amazon is continuing to take share from other marketplaces, now at 10% of all online retail in Australia.

The Australian Federal Budget is positive for retail given income tax cuts. However, there are very few other initiatives that shift the outlook for consumer spending. Power price relief helps, but it is at the margin. The tax cuts add 1.6% to household income in FY25e. However, evidence from past tax cuts shows it takes time for them to benefit spending. Treasury forecasts a 1% acceleration in consumer spending for FY25e compared with FY24e. We take the same view on retail spending and expect a 1% improvement in growth for FY25e, a modest upswing. We are near the low point of the retail cycle and tax cuts will help lift growth. Even so, sales growth is likely to be slower than cost growth.

The ABS has stated that its Retail Trade series will cease from July 2025 and instead the ABS will use its Household Spending Indicator to measure consumer spending. This is a risk for all users of retail data given the short history for the replacement data series. Bank transaction data exhibits more volatility and we may no longer have a reliable measure of retail market sizes. We need more data, not less to help retailers, suppliers, landlords, regulators and investors all make more informed decisions and maximise productivity for the industry.

Super Retail Group’s trading update provides divergent implications with sales improving slightly, but gross margins deteriorating a little in Feb-April 2024. Rebel has accelerated a little, while BCF slowed. The commentary on gross margins is a little softer. The company outlined the implications of its recent wage agreement, which will entrench higher cost growth for FY25e.

Australian retail sales rose 1.3% in March 2024 (0.8% seasonally adjusted). Given the timing of Easter, judging the results is problematic. However, seasonally adjusted data and our own feedback reinforces the view that sales trends remain weak across March-April. Per capita retail volumes fell 2.3% in the March 2024 quarter. Additional category detail shows weakest underlying trends in electronics, furniture, recreational goods and clothing. We expect very weak trends to persist through to June 2024 with a mild pick up for the back-half of calendar 2024.

Endeavour Group reported normalised sales growth of 1.0% for 3Q24. The retailer’s challenge is a tough industry backdrop. We expect soft sales trends to continue as the liquor retail industry undergoes a normalisation of volume and pubs experience some trading down behaviour. Even so, sales trends should improve slightly in 4Q24e and FY25e for Endeavour.