Macro Intelligence: Australian retail sector battles economic headwinds and awaits rate cuts

Retail outlook

In this week’s edition of IG Macro Intelligence, we take a deep dive into the retail sector amid a challenging macroeconomic environment and expected further interest rate cuts.

Challenges in Australian retail spending

Australian retail trade declined in April, down 0.1% from the previous month.

In the year to April 2025, retail spending was up 3.8%; however, data show Australians are cutting back on discretionary items due to the cost-of-living crisis.

Australian retail trade

According to the Australian Bureau of Statistics (ABS), spending on clothing, footwear, and personal accessories declined 2.5% in the most recent reading, with spending at department stores falling by a similar amount.

This situation has led to numerous profit warnings from Australia (ASX) 200-listed retailers, citing 'challenging macroeconomic conditions.'

Seasonally adjusted industry spending

On sale

KMD Brands (ASX:KMD)

KMD Brands, the owner of retailers Rip Curl and Kathmandu, is among several discretionary retailers that have recently issued profit warnings. 

The clothing retailer stated that warmer-than-expected weather in Australia had hurt sales at its outdoor Kathmandu brand. Total group sales were down 0.5% in the first 10 months of financial year (FY) 2025, compared with expectations of growth of around 2%.

KMD Brands total sales change year-over-year (YoY)

KMD Brands also released its first full-year underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) guidance, forecasting it will be between NZ$15 million and NZ$25 million. 

Shares have fallen around 33% year-to-date (YTD) and are down 25% over the past 12 months. They reached a record low in both Sydney and Wellington trading following its trading update. The retailer also warned that it expects the uncertainty of United States (US) tariffs to impact its FY2025  EBITDA by approximately NZ$1 million.

KMD Brands daily chart

Analysts have been downgrading their targets for KMD in the wake of its trading update; however, the average recommendation remains a hold with a $0.42 share price target, according to Refinitiv data.

KMD Brands historical trends and price targets

Mark Gardner from MPC Markets remarked that KMD seems 'fairly cheap,' but he expressed doubts about a turnaround in the next 12 months, preferring 'the structural growth story of Temple & Webster or Bunnings and Kmart brands.'

Accent Group (ASX:AX1)

Shares Accent Group have fallen close to 45% YTD and are down more than 30% over the past 12 months. The footwear retailer recently announced that like-for-like sales, with adjustments for newly opened stores, were down 1% in the 23 weeks to 8 June.

Accent Group daily chart

Accent, which owns a number of brands such as The Athlete's Foot, Stylerunner, and Platypus, pointed to challenging trading conditions in the second half (H2) of FY2025, with low overall growth in the lifestyle footwear market.

Accent also reported: 

• A decline in its gross profit margin by 80 basis points (bp) YoY
• Forecasted FY earnings to be between $108 million and $111 million.

Accent Group historical trends and price targets

Given Accent recent selloff, most analysts remain bullish on the stock. UBS has a 'buy' rating and a $1.80 price target, following a recent survey of 1000 adults to evaluate the spending intentions of Australians.

The survey found that consumers are optimistic about the financial outlook over the next 12 months, leading UBS to upgrade its forecast for consumer discretionary stocks.

Accent Group buy/sell indicators and analyst projections

Premier Investments (ASX:PMV)

Premier Investments shares are down around 20% over the past year, and ASX Tradewatch data show sentiment among investors has been weak, with the stock recently falling dramatically enough to register as oversold.

Premier Investments daily chart

UBS has a $24 price target on Premier Investments, close to the broker average of $24.25 according to Refinitiv data, and in line with the average 'buy' recommendation.

Marcus Bogdan from Blackmore Capital is optimistic about Premier Investments, noting 'net cash of around $250 million and excess franking credits.' He mentioned the potential for dividend growth matching the 'earnings profile of 10% earnings per share (EPS) growth through the cycle.'

Premier Investments historical trends and price targets

Adairs (ASX:ADH)

Shares in Adairs recently had their worst trading day since January 2022 after the furniture retailer issued a downbeat trading update..

Adairs daily chart

Adairs (ASX:ADH)

UBS cut its price target on the stock to $2.25 from $2.55, citing softer gross margin performance driving a decline in Adairs’ earnings, rather than higher promotional activity. However, the broker maintained its 'neutral' recommendation.

David Lane from Ord Minnett advised caution, acknowledging some buyers might be tempted by the 20% drop in shares but warning of declining margins: 'I'd probably be holding off at the moment.'

When it comes to Harvey Norman, analysts are more positive — with an average 'buy' recommendation and target price of $5.49 according to Refinitiv, suggesting the stock can rally a further 4.5%.

Adairs historical trends and price targets

Myer Holdings (ASX:MYR)

Finally, analysts are constructive on the outlook for retailer Myer, which is undergoing a strategy refresh under new Chief Executive Officer (CEO) Olivia Wirth.

Myer daily chart

The average price target on the stock is $0.99 according to Refinitiv, suggesting the stock can rise 65% from current levels.

Morgan Stanley analysts are even more bullish, with a $1.05 price target, saying Myer has outlined a 'clear strategy and leadership structure to manage delivery, while synergy targets look achievable and may exceed initial expectations.'

Myer buy/sell indicators and analyst projections

Cuts coming

Anticipated further rate cuts from the Reserve Bank of Australia (RBA) are expected to boost consumer confidence, and in turn, retail trade. However, risks around US tariff implications and any inflation caused by escalating tensions in the Middle East are major concerns for this outlook.

Adelaide Timbrell from Australia and New Zealand Banking Group Limited (ANZ) commented, 'The income is back to its pre-Covid trend after a drop, but not yet on a per person basis. If global conditions don't worsen, we could see an acceleration in consumption.'