Consumer demand has been under pressure due to lower confidence, higher interest rates and a soft property market but retailers are set to report fiscal 2026 results broadly in line with consensus, Jefferies said in a note on Monday.

The investment firm said, however, rising competition and elevated wage inflation are expected to weigh on retailers' earnings in fiscal 2027.

The outlook for the supermarket sector in fiscal 2027 remains sturdy, as food inflation is expected to help offset rising wage costs. Coles Group (ASX:COL), was picked as the preferred stock, with a buy rating and a raised price target of AU$26.50 from AU$25.50.

Wesfarmers (ASX:WES) was downgraded to underperform, with price target of $73. Despite the retailer's strong businesses and productivity initiatives, Jefferies said the valuation appears expensive following recent share price gains in light of moderate earnings growth.

Flight Centre Travel (ASX:FLT) had been performing well before the outbreak of war in the Middle East. Its outlook remains robust, supported by recovering travel demand and a stronger leisure business mix after COVID-19, while rivals continue to face challenges. The brokerage provided a buy rating and price target of AU$14.50.

Domino's Pizza Enterprises (ASX:DMP) is progressing well with improving debt levels and cost reductions beginning to deliver results. Same-store sales growth, which has been weak due to unprofitable promotions, should gain pace as pricing measures take effect. Jefferies maintained its buy rating but lowered its price target to AU$26.00 from AU$28.50.