Super Retail sees subdued consumer demand going into 2024 second half-year

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. Annual turnover is now approaching $4 billion covering motor accessories, outdoor leisure equipment and sporting goods. Today the Group employs 15000 people across 768 stores.

Subdued consumer demand going into second half-year

Management previously reported experiencing a more constrained retail trading environment at the end of the December quarter and this softness has continued into the first seven weeks of the June 2024 half-year. Initially management attributed this softness in December to a ‘pull forward’ of sales revenue into the successful Black Friday – Cyber Monday sales promotion in November.

Eleven new store openings targeted in June 24 half-year

Sales revenue in the first half-year was up 3 percent to $2 billion and this growth is set to continue with eleven new stores targeted for opening in the six months to 30 June 2024. The ‘ramp-up’ period that follows a new store opening implies that these new stores will contribute to sales growth for at least a couple of years after opening. This anticipated growth will be boosted by the seventeen new stores opened in the six months to 31 December 2023.

Capital Management

Management referred to the strength of the Group’s balance sheet and the flexibility to consider future capital management initiatives. The likelihood that interest rates may have peaked and the prospect of lower interest rates beyond 2024 would support the business case that the optimal use of the Group’s current cash balance of $321 million is to buy back its own shares. While this has not been explicitly stated by management, reference to capital management initiatives implies that shareholders may benefit from Super Retail having the flexibility to soak up shares on market at a price that the Board considers to be under-valued. Applying surplus cash by way of an on-market share buy-back that achieves a higher return than bank interest (currently about $8 million per annum) is sound capital management practice and so should not come as a surprise if an on-market share buy-back is announced at the time of the full-year results announcement in August 2024.

Looking Ahead

Super Retail is well positioned to benefit from a stronger consumer retail environment and an easing of inflationary pressures in the period ahead. The Group owns and operates several strong brands like Super Cheap Auto, Rebel Sports and BCF, backed up by loyalty programs comprising eleven million active members who account for approximately seventy percent of Group sales.

Super Cheap Auto brand accounts for about 40 percent of Group sales and more than 50 percent of Group profit and is an extremely resilient business. This sales resilience is driven by consumer expenditure necessary to keep customers’ cars on the road by buying lubricants, batteries, wipers, car detailing and parts. On the other hand, Rebel Sports which accounts for about 34 percent of Group sales is experiencing a decline in demand for high value items like running machines, home training and basketball systems.

The Group has commenced construction of a new automated distribution centre, and this will add to supply chain efficiencies and inventory level optimisation. The Group’s net cash and no debt position, established brand loyalty programs, and buying power, point to steadily increasing profits and dividends over the medium term for patient investors.