With cost-of-living pressures biting, retail is a difficult space to be in at the moment.
That said, it doesn't mean there aren't companies that stand out from the pack and are worth looking at from an investment perspective.
RBC Capital Markets has looked at the sector broadly and come up with some key picks for your portfolio.
For a start, they say broadly that things certainly are competitive:
While we expect the sector to report in-line revenue, we anticipate elevated discounting and competition may present downside risk to gross margin outcomes as evidenced by Super Retail Group's and Endeavour Group's recent announcements. Woolworths and JB Hi-Fi stand out as other names facing potential downside risk to gross margins.
So who does the RBC team think will surprise on the upside this reporting season?
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Collins Foods Ltd (ASX: CKF)
RBC has had a look at Collins Foods and says its FY26 net profit guidance "looks conservative to us''.
The company is guiding for growth in the mid to high teens; however, RBC has done the sums and believes it's likely to come in at the top of that range.
They also point out that chicken "may be structurally oversupplied in Australia'', which could be good news on the cost front for the KFC operator.
RBC has a price target of $12.80 on Collins Foods shares compared with $10.75 currently.
Coles Group Limited (ASX: COL)
When it comes to Coles Group, RBC says market share trends will be the focus, with Woolworths Ltd (ASX: WOW) discounting to gain market share.
We believe a narrowing of share tends in the second quarter is likely, though we forecast Coles has done a better job of protecting margins.
RBC said, "outsized cash flow growth will provide scope for Coles to invest in further entrenching structural cost advantages."
RBC has a price target of $24 on Coles, compared with its current price of $20.76.
Super Retail Group (ASX: SUL)
Over at Super Retail, RBC says much of the negative news has been released before the reporting season.
They say the company has scope to grow across multiple brands.
Supercheap Auto has an opportunity to improve execution (store format, range) to take share from Autobarn. Rebel top-line trends remain solid, and stronger execution should enable Rebel to more effectively deliver margin outcomes going forward.
RBC says with sales growth figures already pre-released, the focus for reporting season will be on cash flow, the balance sheet, and the first eight weeks of trade in the second half.
RBC has a price target of $16.10 on Super Retail shares, compared with its current price of $14.50.
