Australia Retail: How will retailers manage cost pressures

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Australia Retail: How will retailers manage cost pressures

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15 Jul 2026 12:57:21 ET │ 46 pages

Australia Retail

How will retailers manage cost pressures

CITI'S TAKE

Adrian Lemme, CFA AC

We refresh our forecasts across our retail coverage in advance of the August +61-2-8225-4811

results. We lower our FY27e earnings forecasts for most retailers as we adrian.lemme@citi.com

update our CODB estimates in light of the recent FWC decision. Most

discretionary retailers appear to be facing negative jaws as we generally Ollie Ridge, CFA

model CODB growth ahead of sales growth in FY27e. We downgrade our +61-2-8225-4705

rating on Woolworths to Sell and upgrade our rating on Metcash to Neutral. ollie.ridge@citi.com

This reflects recent share price performance for both and movements in VA

consensus earnings for Metcash.

Factoring FWC decision into our forecasts — We attempt to factor in the Fair Work

Commission’s recent decision that will lead to a 4.75% lift in retail store wages for

FY27 into our forecasts. The ability to offset these rising costs will depend on the top

line growth for each retailer and scope to reduce labour hours (with higher staff per

store generally providing more labour flexibility than small format stores). We lower

our FY27e EBIT forecasts by up to ~3% across our retailers under coverage. The

exception is Wesfarmers, with higher lithium prices driving a ~3% lift in our FY27e

EBIT forecast (though we remain ~2% below VA consensus at Group EBIT).

Discretionary facing negative jaws — Industry feedback indicates discretionary

retailers faced challenging trading conditions in June, particularly in electrical and

furniture. We see this as a response to this year’s interest rate hikes and more

recently the May Federal Budget.