Super Retail Group subsidiary Rebel will face category tailwinds in the longer term, according to Citi analysts in a note to investors.
This is due to a lift in female participation in sports, alongside the further rollout of rCX format stores - including trimmed-down regional versions.
Rebel opened four rCX stores in FY23 bringing the total rCX store count to 15. The sporting retailer began rolling out the concept in 2020.
The rCX format is intended to boost in-store customer interaction through physical activations such as football testing zones and on-site fitness experts.
Based on Super Retail’s FY23 trading update, Citi analysts estimate that around 30% of Rebel’s incremental sales growth since FY20 has been driven by the rCX rollout.
“Furthermore, we estimate that ~60% of our assumed sales growth to FY26e is underpinned by the rollout of another 12 rCX format stores,” Citi analysts note. “This suggests upside risk to Rebel’s overall sales.
“Our estimates are quite conservative given this implies low sales growth in non-rCX stores through FY23-26. Consensus is even more so with FY26 sales only slightly ahead of FY23 despite any sales benefits from the rCX format.”
Citi analysts say they have been believers in the rCX format since visiting the Parramatta store with management last year.
They said Super Retail highlighted that stores converted to rCX have seen a more than 50% lift in sales from FY20 to FY23 at an investor presentation last week.
Meanwhile, Citi analysts said Super Retail Group overall has outperformed the market by 25% in FY23 and is trading close to 52-week highs.
The ASX-listed company reported a net profit after tax (NPAT) of $273.5 million, which is around 1% less than Citi predicted, but around 3% above consensus.
Citi analysts forecast cash cost of doing business (CODB) growth of around 5% in FY24e, “though this could prove conservative following a strong 2H23 performance.”
“Longer-term, the successful rollout of the rCX format underwrites most of the top-line growth in our Rebel sales forecasts to FY26.
Citi analysts have raised their earnings forecast for Super Retail by around 2% in Fy24 and FY25.
Sales for the second half of FY23 hit around 6% below Citi’s forecast, but analysts said momentum in the trading update looks solid, particularly on a four-year like-for-like sales stack basis.
“We see group sales down 1% in FY24e with benefits of store rollout offset by a tougher trading environment.
“Cash CODB was down 1% in 2H23, an impressive result given the inflationary pressures. This was aided by the weaker-than-expected sales but also by the various cost initiatives put in place that are yielding results.
“We factor in ~5% cash CODB growth in FY24e given the pull forward of wage increases (to be in line with the Fair Work GRIA increase of 5.75%) and higher corporate costs.”