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.

The upcoming 1H25e reporting season will reveal divergent fortunes for retailers. We expect more retailers to report a decline in earnings than those with growth. While retail sales growth is improving, its not yet enough to cover cost growth. Retailers that could surprise on the upside are JB Hi-Fi and Breville. Those that may disappoint relative to Visible Alpha consensus expectations include Wesfarmers and Woolworths.

Reporting season across the retail, food & beverages sector is likely to highlight the resilience of profit margins for FY24e, despite weak sales. The strength of margins is a function steady gross margins and cost reductions. While good news, consensus expectations already reflect this outcome. We are above consensus on Inghams and Woolworths and below on Lovisa for FY24e EPS. We expect trading updates to influence share prices meaningfully with the risk that FY25e consensus needs to be downgraded for many. We are below FY25e consensus on Bapcor, Premier Investments, Super Retail Group and Wesfarmers.