Super Retail achieves record half-year sales, but profit declines by eight percent

About Super Retail Group Limited

Super Retail Group (Super Retail, the Group, ASX: SUL) commenced in 1972 as a mail-order business selling motor accessories and by 1974 turnover reached $1 million. Turnover is now approaching $4000 million covering motor accessories, outdoor leisure equipment and sporting goods. Today the Group employs 15000 people across more than 700 stores.

Record first half sales, but wages inflation hits profit

Based on preliminary unaudited numbers, Super Retail Group Profit Before Tax (PBT) for the December 2023 half-year is estimated to be in the range of between $200 to $203 million. This is down about eight percent on the PBT of $218 million earned in the previous corresponding 2022 half-year. Black Friday and Christmas trading periods were a success, although tempered by comments from the Group CEO that the Group experienced a more constrained retail trading environment at the end of the December quarter. This reflects a ‘pull forward’ of sales revenue into the successful Black Friday Cyber Monday sales promotion in November.

The Group’s core business Supercheap Auto, which accounts for more than half of Group earnings, recorded 4 percent sales growth while Rebel Sports, which accounts for 30 percent of earnings, suffered a 1 percent drop in sales revenue.

Gross margin percentages are higher compared to the December 2022 half-year, supported by a modestly stronger Australian dollar which presently sits at 67 cents against the US dollar. This increase compares to a low 62.7 cents in late October. Much of Super Retail’s merchandise is imported from overseas and so the Australian dollar is a key determinant of gross margin for the Group. Hedging strategies in place cushioned much of the blow of the weaker Australian dollar last year, however the recent currency strength enables the Group to renew existing currency hedges at favourable rates.

However, detracting from the strong gross margin outcome in the first half is the higher cost of doing business as a percentage of sales, resulting from the impact of inflation on wages, rent and electricity. Costs were especially higher at Rebel Sports stores, given the higher team member-to-store ratio.

Looking Ahead

Super Retail Group’s durable competitive edge is its economies of scale with 736 stores and 7 distribution centres employing 15,000 people that provides for low unit costs of doing business. This scale of operations strengthens the Group’s bargaining power with suppliers.

Another feature of the Group that drives investor appeal is its sales resilience in subdued economic times such as when cost-of-living pressures impact household spending, such as the present time. Ninety percent of items sold by Super Retail Group are priced under $100, making it less impacted by a drop off in discretionary consumer spending compared to other retailers.

The Group is in a strong financial position, with no drawn debt and a positive cash balance.

First half-year results are due for release on 22 February.