The profit outlook for Australian retailers raises concerns.

Analysts have 2022 Lilium Lily Forexstated that due to decades of high inflation supporting commodity prices, retailers such as Australia's major supermarkets are expected to report stronger annual earnings. However, rising borrowing costs, increasing expenditures, and changes in consumer behavior will have a significant impact on the future profits of Australian retailers.

Although annual profits for large chain supermarkets like Woolworths Group and Coles Group are expected to grow, consumers cutting back on living expenses amidst rising living costs could drag down the future profit outlook for Australian retailers. With Woolworths and Coles accounting for two-thirds of Australia's food and grocery sales by dollar value, they are considered barometers of consumer behavior by market participants.

Tim Waterer, the Chief Market Analyst at KCM Trade, noted that retailers like Woolworths and Coles have performed well in the era of high inflation by increasing the sales prices of goods. However, non-essential goods retailers are finding it increasingly difficult as consumers cut back on spending on non-essentials.

Since May last year, Australia's interest rates have climbed by 400 basis points, adding hundreds of dollars to consumers' monthly expenses and resulting in a slowdown in consumer spending. Data indicates that June saw the largest drop in Australian retail sales this year.

Analysts at retail giant Wesfarmers believe that its budget department store Kmart will continue to benefit from rising inflation, which has helped the company earn most of its profits over the years, while sales at its hardware chain Bunnings are expected to decline.

Woolworths and Wesfarmers are set to announce their annual net profits after tax this week, revised upwards to 1.74 billion Australian dollars from 1.51 billion and to 2.47 billion from 2.35 billion Australian dollars, respectively. Refinitiv expects Coles' after-tax net profit to be 1.11 billion Australian dollars, higher than last year's 1.05 billion.

Analysts at UBS stated that despite a performance better than expected in the second half of the 2023 financial year, the continuous rise in operating costs and consumers being forced to cut back on expenses are adverse factors that retail companies need to face.

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