Companies leveraged to the hardware and takeaway sales sectors are expected to outperform other retail stocks as the short-term prospects of Australian retailing improve, according to Morningstar.
“The near-term outlook for the greater retailing sector is increasingly positive,” the research house wrote in its June 2025 Industry Pulse publication headlined: ‘Australian Retailing: 2025 Q2’.
It said household incomes were growing in real terms and a continued easing of monetary policy would boost consumer sentiment and growth in retail spending in fiscal 2026.
Recent headwinds to goods consumption were easing, as the reversal of the huge mix shift to goods from services during the COVID-19 lockdowns had been completed, and the savings rate was back to normal.
"Although the overall outlook is positive, we expect some categories to fare relatively better. We forecast hardware and takeaway sales growth to outperform as the construction market and consumer sentiment improve, respectively,” Morningstar said.
It said Wesfarmers (ASX: WES), Metcash (ASX: MTS), Guzman Y Gomez (ASX: GYG), Collins Foods (ASX: CKF) and Domino’s Pizza Enterprises (ASX: DMP) were well-placed.
Morgans Financial listed Collins Foods and GYG among its ‘best ideas’ on Tuesday, forecasting them to provide total shareholder returns of 12% and 35% respectively over 12 months, with ‘moderate’ earnings risk.
In a note in May, the broker had highlighted the attractiveness of takeaway food, which it said was the strongest performing category in April retail sales data.
“This bodes well for takeaway food services with operations in Australia like GYG, CKF and DMP,” Morgans wrote at the time.
RBC Capital Markets rated sentiment about Collins Foods as ‘positive’ when it set a price target $8.50 on 23 June, but the share price has since surged from $7.26 to $9.24.
However, sentiment about Domino’s was rated ‘negative’ by RBC on Wednesday after the company failed to provide a trading update with news that its CEO Mark Van Dyck would step down in December.
Morningstar also said retailers with soft sales, such as Woolworths’ (ASX: WOW) BIG W and Super Retail Group’s (ASX: SUL) Rebel, might struggle as wage growth increased their costs.
Discretionary retailers were forecast to benefit more than grocers from a stronger consumer, with liquor retailers like Endeavour (ASX: EDV) and Coles (ASX: COL) likely to experience sales momentum as shoppers shifted to higher-margin premium brands.
Morningstar forecast solid sales growth for household goods retailers like JB Hi-Fi (ASX: JBH), Wesfarmers (ASX: WES), and Harvey Norman (ASX: HVN), but their share prices implied a better a much better earnings outlook than the research firm expected.
The department stores’ category was in a multi-decade structural decline as they lost their share of wallet to specialty stores and online marketplaces, with Myer Holdings (ASX: MYR), BIG W and Wesfarmers’ Kmart the most exposed.
Morningstar said that although Amazon (NASDAQ: AMZN) was growing rapidly in Australia and was forecast to command 24% of Australian e-commerce by 2030, there would be plenty of room for other players.
