10 key lessons from August reporting season

This August reporting season came at a pivotal moment for Australian markets where higher rates, easing inflation, and shifting consumer patterns collided.

Results mattered less than the past year and more about how boards and management are positioning for what comes next. Companies that adapted to rising costs and managed shifting demand stood out, while those with structural weaknesses fell behind.

The Reserve Bank’s mid-year rate cuts marked a policy pivot that lifted sentiment. Inflation, though easing, still lingered in wages and expenses, making cost discipline central. Consumers, while pressured, redirected spending—creating clear winners and losers across retail, travel, and leisure.

For investors, reporting season offered not just earnings, but a roadmap for the cycle ahead. The following ten lessons highlight the themes shaping portfolios.

1.  Rising rates bite - and a policy pivot begins

This August reporting season underscored the toll of high rates. Companies carrying heavy debt loads saw earnings eroded by rising interest costs, with property and infrastructure names particularly exposed. Banks, meanwhile, enjoyed a fleeting tailwind as margins widened, with Commonwealth Bank's (ASX: CBA) NIM edging higher up to 2.08%. 

Yet the lesson for investors is that cycles turn quickly. By mid-August, the RBA had already cut rates by 75 basis points, cooling inflation and bringing the cash rate to 3.6%. 

The policy pivot has shifted sentiment, leaving boards and investors alike weighing how easing financial conditions may reset the growth outlook. 

2. Inflation easing, but not gone

Inflation may be easing, but it's certainly not over yet. The latest CPI print surprised to the upside. 

Headline inflation rose to 2.8% year-on-year in July, well above market expectations of 2.3%. 

Core pressures also remained firm, with the trimmed mean climbing to 2.7%, now in line with the quarterly CPI. Much of this surprise was driven by electricity and travel costs, which together added around 55 basis points compared to forecasts of a more modest 2.0% rise. 

While inflation has eased meaningfully from its earlier peaks, it's not yet in the rear-view mirror. Earlier in 2025, headline CPI had dipped towards 2.1% year-on-year, its lowest since mid-2021, and core inflation softened back into the RBA's 2-3% target band. 

Tradable prices - think fuel, shipping and imported goods - have cooled off dramatically too, easing pressure on cost-sensitive sectors. 

But don't get too comfortable, the legacy lingers. Many companies still face elevated operating costs after the surge in prices and wages, and households remain cautious, with spending tempered by cost-of-living pressures. 

In short, inflation is moderating, but its effects continue to ripple across both businesses and consumers. 

3. Consumer demand holds up - with shifts

Households didn't roll over in FY25 - they reshuffled. Australian consumer spending proved more resilient than expected through FY25, despite elevated rates. Low unemployment and accumulated savings helped support demand, especially for essentials. 

However, discretionary retailers felt a pinch early in the year as households tightened belts. Retailers leaned hard on promotions; Adairs (ASX: ADH) and Accent (ASX: AX1) issued profit warnings amid "weaker demand weighing on sales growth" and heavy discounting to clear stock. 

By August, the tone shifted with consumer confidence jumping ~5.7% to its highest since early 2022 after rate cuts, boosting sales with retailers such as JB Hi-Fi (ASX: JBH), which delivered sturdy sales yet its shares slipped on a leadership change, and Kogan (ASX: KGN), which saw share gains on upbeat outlooks.

The lesson is that demand is uneven - still soft in interest-sensitive areas, but not collapsing, and poised to improve as monetary pressure eases. 

4. Persistent cost pressures and efficiency drives

Even with inflation slowing, companies are grappling with elevated cost bases - from wage rises amid a tight labour market to still-expensive energy and inputs. These cost pressures have put margins under strain, making cost discipline a central theme. 

Many management teams responded with efficiency measures: in fact, cost-cutting "takes centre stage", with some embracing workforce reductions and productivity tools. 

Despite a 14% rise in profit, biotech leader CSL Limited (ASX: CSL), will be slashing around 3,000 roles (about 15% of its global workforce) and is spinning off its vaccine arm into a separate listed company. 

It's a signal that even successful companies are trimming fat to protect profits. 

Across the board, investors are rewarding firms that demonstrate they can contain costs (through automation, AI, or simplification) in an era of sticky expenses. Those cutting costs while maintaining growth get rewarded - not for doing less, but for being smarter. 

5. Inventory levels normalise (avoiding gluts)

After years of supply chain swings and stockpiling, inventories are finally getting back in line. Proper inventory management proved crucial in the reporting season: retailers who kept stocks lean were able to maintain pricing and avoid heavy markdowns, whereas those that over-ordered had to slash prices to clear excess goods. 

On the other hand, companies with low inventory levels relative to demand (especially online retailers) fared better, preserving cash and margins. 

The overarching lesson is that inventory discipline through aligning stock with realistic demand has become a key success factor in a post-pandemic market where just-in-time efficiency is ideal. 

Margin consciousness is a competitive moat. For FY25, margin preservation via clever inventory (and markdown) strategy was just as vital as top-line growth. 

6. Levered model? Buckle up - it cuts both ways

FY25 spotlighted the double-edged sword that is operating leverage. Businesses with high fixed costs experienced outsized profit swings from relatively small changes in revenue. 

Building materials group James Hardie (ASX: JHX) saw a 60% plunge in quarterly profit after a mere 9% drop in sales - a dramatic downside example of fixed costs magnifying a demand slowdown. 

Flip the script, and leverage can reward fast movers. Sectors that enjoyed even modest volume recoveries saw earnings jump. Many travel and hospitality companies benefited from this effect as demand returned. 

The takeaway is clear: companies with heavy fixed costs face greater earnings volatility - spectacular when conditions improve, but painful when they soften. 

Reading the operating model pays. Investors should map out corporate cost structures. When growth is coming, highly leveraged models can outperform - and crush on the downside. 

7. Capital back in fashion - shareholders returns back in focus

The fog of uncertainty has cleared - boards are rewarding patience. With major uncertainty easing, boards resumed or increased dividends and share buybacks that had been on hold during COVID. 

The market is putting a spotlight on sensible capital deployment, and investors are calling for clarity on dividends and buyback plans. 

Notably, CBA led the charge with a record $4.85/share dividend, including a final $2.60 payout, nearly maxing out its payout target and delivering real returns. Other blue chips similarly lifted payouts. 

Wesfarmers (ASX: WES) hit shareholders hard with a $1.7 billion special dividend, riding the wave of strong results from Bunnings and Kmart.

Boards aren't chasing headlines, they're using excess cash smartly. Buybacks are back, dividends are growing, and capital discipline is the tag investors want. 

The theme is prudent capital allocation - sticking to core investments and returning surplus cash - which fund managers appreciate in uncertain times.  

8. Margins - resilient vs. squeezed

This reporting season separated the pricing-power "haves" from the "have-nots". Some companies managed to defend or even expand profit margins despite cost headwinds - often by passing on price increases or finding efficiencies. 

For example, medtech firm ResMed (ASX: RMD) recently achieved gross margin expansion to ~59%, translating strong demand into a 14% rise in operating income. By contrast, other businesses saw margins compress under rising costs and competitive pressures - notably discretionary retailers who had to slash prices to stimulate sales. 

Even supermarkets and other defensives, which enjoyed higher prices during the inflation spike, faced normalising margins as input costs remained high while price growth cooled. 

In short, margin resilience became a key marker of quality this season: companies that protected their margins through smart pricing and cost control stood out, whereas those unable to do so signalled potential trouble. 

9. FX and global movements matter

The Australian dollar's decline to multi-year lows in 2025 had a tangible impact on earnings. A weaker AUD proved a boon for exporters and companies with significant overseas revenues, for sectors such as mining, energy, and healthcare enjoyed currency translation tailwinds. 

Analysts had been forecasting earnings using exchange rates around US$0.68-0.70, so the reality of the AUD nearer US$0.62 meant unexpected upside for those global earners. 

Resource companies' profits held up better thanks to commodity sales in USD, and global healthcare firms like CSL benefited from converting foreign sales at a weaker Aussie dollar. 

On the flip side, import-heavy businesses and those sourcing inputs in USD/euro saw higher costs. Trade tensions also featured: some firms cited tariffs or geopolitical factors denting results (e.g., Reliance Worldwide (ASX: RWC) noted new US import tariffs will cut ~$25-30 million from next year's earnings). 

The lesson is that macro forces beyond Australia, currency swings, China's economic health, and trade policies are driving variability in ASX company performance. 

10. Outlook and guidance trump past earnings

Perhaps the clearest market lesson from reporting season is that investors are laser-focused on the future. Share price reactions hinged more on forward guidance and commentary than on last year's profit numbers. 

Companies that delivered tepid results but issued confident outlooks often saw their stocks rise, while those meeting expectations yet hiding cautiously were sold off. 

For example, BHP Group (ASX: BHP) shares rose despite a 26% drop in FY25 profit, as management's improved cost guidance and optimism on copper demand reassured investors. 

In contrast, CSL Limited (ASX: CSL) fell 15-17% after its announcement despite having solid FY25 numbers, but due to a softer FY26 outlook and a major restructuring plan that spooked the market. 

The lesson for investors: expectations management is paramount. 

In an environment of uncertain macro prospects, a company's narrative on the road ahead, operating leverage opportunities, cost strategies, and growth plans, is often more influential than its trailing earnings. Investors are actively re-pricing stocks based on how well-positioned firms appear for FY26 and beyond.