Viva’s 3Q25 trading update reveals challenges still exist in its Convenience segment with a decline in tobacco gross profit. However, elsewhere in the business conditions are turning the corner. Gross profit for non-tobacco sales has increased and refinery margins are higher. Elevated refinery margins should persist for a few more quarters at least. We have reduced our Convenience and Commercial segment earnings for Viva, but lifted refining profits.

We transfer coverage of Viva Energy from Scott Hudson to Craig Woolford. In this report, we address the outlook for its convenience strategy and balance sheet position. We are positive on the refining margin outlook but expect the OTR conversions to be slower and more costly to complete.

Upcoming quarterly sales for Coles, Woolworths and Endeavour Group will show a continuation of recent themes. Coles Supermarkets winning, receding inflation and weak liquor volumes. We forecast 1Q26e comp sales of 4.2% for Coles and 1.6% for Woolworths. This gap is approaching a level where Coles could also win 2Q26e, an outcome that would intensify the scrutiny on Woolworths Board and management. We forecast Coles Liquor comps at -0.3% and Woolworths at -0.6%. Liquor retail is still in the doldrums, but pubs are back in growth suggesting broader liquor consumption concerns are easing.

Sigma Warehouse reported its 1Q26 sales at its AGM. Chemist Warehouse like-for-like sales were up 14.7% for the quarter, an acceleration on FY25 trends. The company highlighted elevated sales of weight-loss drugs like Ozempic as a big contributor. We estimate the contribution is anywhere from 3%-5% of the LFL growth. We expect LFL sales to settle back at 11% in 2Q26e and 9.0% in 2H26e.

We have made modest revisions to our retail sales forecasts. For FY26e, we forecast retail sales growth of 4.0% (prev 3.9%) and for FY27e 4.1% growth (unchanged). Non-food retail spending has been solid in the past six months and the trends are likely to continue into Christmas this year. However, we may see some shift in category performance in the new year as household goods slow, while fashion and takeaway food sales improve. Our upswing in retail sales is muted, which is a function of slowing household income growth and a low savings rates. We continue to monitor house prices closely as a source of upside risk if the wealth effect stimulates the use of previously stored-up savings.

Bapcor’s trading update revealed ongoing sales declines and a sharp drop in profit margins for 1H26e. The company’s discovery of poor business practices highlights the complexity in the group and the need to simplify. Based on current trends, sales should stabilise in 2H26e and cost savings are likely to trigger a margin recovery. On our estimates gearing will stay below covenant levels and free cash flow should help reduce debt.

The festive season will ramp-up for retailers in the next few weeks. The consumers’ embrace of Black Friday has resulted in November sales now representing a bigger share of the annual calendar in Australia compared with the US, UK and NZ. The timing and high base makes it difficult to see a strong festive sales period in 2025. We forecast non-food sales to rise 4.0%, a slight dip on recent trends. While the sales backdrop will be decent, the risk is retailers discount earlier this year given higher inventory for some. We highlight Accent Group and Lovisa as retailers with elevated inventory levels.

The downgrade by Treasury Wines to its FY26e outlook will raise questions about the path for Penfolds, quality of Americas earnings and changes that pending CEO Sam Fischer may implement. The drop in Penfolds growth is understandable given “crackdowns” by the Chinese government on official banqueting. The deeper concern is the reset in Americas luxury margins where the contribution outside DAOU looks small.

Australian retail sales only rose 3.1% in August 2025, a slowdown from the 5% trendline seen in the previous three months. The slowdown was broad-based, albeit café & restaurant spending remained strong at 6.4% growth. While the slowdown may raise some concern, we see the sustainable trend level around 4% growth and hence a softer month for August and September is likely. Consumers are bound to wait till Black Friday to spend up again.

This chart pack provides subscribers with insights about the retail operating environment and outlook for sales, gross margins and operating leverage. The chart pack has been compiled post the FY25 reporting season across the retail market providing fresh insights about the sector.