The Australian consumer sector is bracing for a challenging February reporting season, according to RBC Capital Markets analyst Michael Toner. While revenue is expected to be in line with forecasts, mounting risks to gross margins are a significant concern as discounting and competition become increasingly intense. Recent trading updates from Super Retail Group and Endeavour Group have heightened these concerns, with Woolworths and JB Hi-Fi also identified as potentially vulnerable to margin pressure.
RBC’s preferred stocks within the sector are Coles, a major supermarket chain, and Collins Foods, a quick service restaurant operator. These companies are expected to demonstrate better margin protection and maintain relatively resilient trading performance compared to their peers.
In a recent research note, RBC upgraded Super Retail to “outperform,” citing valuation support and pre-released guidance. However, the broker downgraded Domino’s Pizza, Inghams, and Guzman y Gomez to “underperform.” This decision was driven by softer sales momentum and potential execution risks within these businesses.
Elevated promotional activity, persistent cost pressures, and increasingly difficult comparable sales figures are anticipated to dominate the reporting season narrative. Margins are expected to be the critical swing factor influencing overall earnings outcomes for companies in the consumer sector.
