Despite Super Retail Group’s “disappointing” first half result – with New Zealand dragging on group sales and overall gross margin down 70 basis points – analysts at investment bank Citi were encouraged by the “more upbeat” trading update.
“The consumer environment is improving and most of the margin impacts appear transitory,” Citi analysts wrote in a note to investors. “Though the weak currency poses risks, Super Retail has managed these well historically.
“Additionally, we estimate the company has balance sheet capacity to declare special dividends over the next two years.”
In its half year trading update last week, Super Retail Group – the parent company of Rebel, Macpac, Supercheap Auto and BCF – reported a total sales growth of 4 per cent to $2.1 billion, with like-for-like sales growth up 1.8 per cent.
Growth in sales was supported by expansion and upgrades in the store network with a net 15 new stores opened in the period – 19 new stores and 4 closures.
Online added to the total sales growth, lifting 10.1 per cent, and now comprising 13.6 per cent of group sales.
However, macro-economic headwinds continued, particularly in New Zealand, with the consumer increasingly value conscious. “Promotional intensity in the market has risen in a number of categories,” Super Retail noted.
Matching the 70 basis point slip in gross margin to 45.6 per cent, cost of doing business (CODB) increased by 30 basis points as a percentage of sales to 35.5 per cent, impacted by higher wages and occupancy costs associated with ongoing inflationary pressures and the expansion of the store network.
Net profit after tax (NPAT) decreased by 9.5 per cent to $129.8 million. Earnings before interest and tax (EBIT) was also down by around $15 million to $218.1 million.
Citi analysts are projecting a better second half of FY25 for Super Retail Group, with the analysts forecasting that Supercheap Auto sales should grow by 4 per cent in the second half amid store rollout and an improvement in like-for-like sales off a softer comp.
“At this stage, we don’t expect Bunning’s entry into the auto category to have a material impact,” the analysts wrote. “We expect BCF and Macpac sales growth to accelerate to ~9 per cent and ~10 per cent, respectively, in 2H25e given the trading update and weak comps.
“Finally, we forecast Rebel to post ~7 per cent sales growth, aided by a better in stock position.”
These forecasts come off the back of a positive like-for-like sales momentum in the first seven weeks of the second half of FY25 for Super Retail Group.
Rebel and BCF continue to deliver strong sales momentum, with a further acceleration in like-for-like growth over the first seven weeks supported by the strategic investment in inventory availability during the second quarter,” Super Retail Group reported last week.
“Similarly, Macpac has seen an improved start to 2H FY25, as it prepares for its peak winter trade season in the fourth quarter.”
The group added that conditions in the auto category are consistent with those experienced in the first half, with ongoing competitor discounting, and softer overall demand levels, particularly in New Zealand.
“The team remains focused on achieving the right balance between promotional discipline and volume growth whilst managing operating costs in the lower growth environment.”
Citi analysts say better sales growth should deliver better operating leverage for Supercheap Auto and Macpac in the second half. Lower new store rollout costs should also help.
“Rebel is now cycling the loyalty program impacts to gross margin (~70 bps in 1H25) and the stock loss impact in 1H25 (likely ~40-50bps) should be brought under control.
“Finally, there are signs that the more aggressive competition in auto is subsiding. In general, an incrementally better consumer environment should translate to a less intense promotional environment.
“At the group level, we expect EBIT margin to expand by 11 bps in 2H25e. Clearly, the currency impact needs to be managed into FY26e.”