The national accounts for the September 2025 quarter provide an insight to the strength of the Australian consumer. The ABS has revised up historical income growth and in the September quarter household income rose 6.7%, with consumer spending up 5.7%. Income growth has averaged close to 8% so far in 2025. No wonder discretionary retail spending began growing above trend this year. The challenge is identifying sources that will result in any further acceleration in retail spending in 2026. We expect retail spending to continue to trend near current levels. The upside case relies on lower household savings which is possible if house prices rise double-digits, a low probability now given the lack of interest rate cuts any time soon.

Metcash reported a 2% drop in EBIT for 1H26. The company’s sales trends are likely to soften a little from here, particularly as it laps Woolworths DC strikes and the Black Friday boost to Total Tools dissipates. The swing factor for Metcash is its corporate hardware stores that need a meaningful upswing in the residential construction cycle. Profit margins are depressed and should recover. The combination of optionality around hardware upside, contract wins in convenience and a good dividend yield give us reason to be positive.

Temple & Webster reported sales growth for the first 20 weeks of 18%. The update implied a slowdown from the August trading update from 28% to 14% in the interim to the AGM. Growth of 18% was below Visible Alpha consensus expectation for 1H26e at 23% and the share price response reflected the concerns around retaining sales growth at more than 20%. Temple continues to win share and will eventually reach scale to achieve a higher EBITDA margin, where we forecast 12% for FY40e.

Accent Group’s AGM trading update reported like-for-like sales turning negative for the first 20 weeks, a slowing on the +0.8% for the first seven weeks of FY26e. EBIT guidance was provided which was below Visible Alpha consensus for both 1H26e and FY26e. The elevated promotional environment and resulting gross margin impact as well as slower than expected like-for-like sales growth were identified as contributing factors to the earnings impact.

The Australian legal tobacco market has shrunk by close to 70% over six years yet nicotine consumption is up over the same timeframe given illicit tobacco and vapes. While the declines are not over, we can see a path to stabilisation in legal tobacco in the second-half of 2026 as legislation on outlets and stronger border force efforts reduce illicit tobacco and vape supply. For Coles, Woolworths and Metcash, stabilisation in tobacco will add 1% to 2% to food sales growth, while the group EBIT drag of 1%-2% per annum will also fade away from FY27e onwards. For Ampol and Viva, the sales impact is likely to be more meaningful boosting convenience shop sales by as much as 7%. Viva has the largest tobacco exposure at 5% of group EBIT.

Sentiment around Wesfarmers has dropped away in the past month. This is the retail bellwether stock on the ASX and for the first time the share price fall has outstripped the consensus earnings downward revisions. Are perceptions shifting on Wesfarmers? Perhaps. But we still expect retail sales growth of 4% and EBIT growth of 5%. 

Lovisa will hold its Annual General Meeting on 21 November. In the past Lovisa has provided an update on LFL sales and store numbers. Visible Alpha consensus has 1H26e LFL sales of 5.4%, implying a modest slowing from the first eight weeks of trade. We expect to see a LFL number above 5.3% supported by the US segment where price rises and competitor disruptions have benefitted sales. Our concern is that the LFL sales growth fades in FY27e to 2% as the US benefits are cycled and domestic competitive pressures grow.

We have published our periodical chart pack of retailer performance vs market. See attached PDF.  This market share report provides two insights – 1) which retailers are winning and to what extent. 2) Insights about market structure.  If you would like any of the data in Excel at any point, just contact us.

Recent Australian data on liquor demand fuels the debate about the structural and cyclical factors. Per capita liquor consumption fell 6% between FY23 and FY24 and we see another -6% for FY25. This sounds sobering. However, the industry is still coming down from its COVID-19 binge and sustaining the long-term structural decline seen over the past 20 years. The silver lining is the magnitude of the decline in liquor markets is likely to ease. Beer volumes have turned positive on-premise. We expect retail liquor to return to growth in the December 2025 quarter. The real opportunity in the liquor industry is to tap into the trend towards premiumisation and RTDs, where Endeavour and Coles both under-index.

Domino’s remains a topical stock with debates about its appeal as a takeover target and also as a cost out opportunity. In our view, these two debates need to accompany a discussion about its weak sales growth and poor franchisee profitability. Without an acceleration in same store sales, cost savings will be difficult to bank for shareholders. If franchisee profitability does not improve, there is a risk there will be more store closures globally.