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Super Retail Group Ltd – Result Update

Sep 28, 2015 | Team Kalkine
Super Retail Group Ltd – Result Update

Results for FY 2015


 
Among the highlights of 2015 for Super Retail Group Ltd. (SUL) were 88,000 customer e-mail enquiries and 396,000 customer telephone enquiries. There were 18 store openings and customer transactions added up to 42 million. Loyalty club memberships stood at 7 million and net revenues amounted to $ 2.2 billion. Social media fans totalled 487,000 and there was one new distribution centre.
 
For FY 2015, the group has delivered strong sales growth of 7.1% from its continuing operations while it has undertaken significant restructuring activities to address performance issues in a number of its smaller businesses. Though these restructuring activities have had a significant impact on the reported statutory results, the same are expected to improve financial results in future periods. The total impact of restructuring for this year is $12.8 million pre-tax including costs of restructuring of the Ray's Outdoors and Workout World businesses. The FCO Fishing camping Outdoors business was closed in May 2015 and the group has recognised an associated loss of $ 16.2 million as discontinued operations. For the 52 weeks to 27 June 2015, total sales increased 7.1% to $ 2.2 billion and net profit after tax attributable to members was $ 81.1 million compared to $ 108.4 million in the previous year. After excluding discontinued operations and restructuring activity, the normalised net profit after tax was $ 106.3 million compared to $ 112.2 million in the previous year.


EPS and ROC (Source: Company Reports)

Cash flow from operations was $ 182 million, an increase of $ 14.8 million over the previous year primarily due to better working capital management. Total investment in inventory across the group was $ 505.6 million, an increase of $ 15.5 million over the previous year. The group’s capital expenditure amounted to $ 71.8 million including $ 38.8 million in new and refurbished stores and $ 33.1 million in IT and supply chain projects and general capital expenditure. As of the end of June, group’s net debt was $ 378.9 million that was comfortably within the facility limits. The group has been reported to be within its banking covenants.

Overall sales growth was achieved in each division. In the Auto Retailing division, new store sales growth and like-for-like sales growth was accompanied by an increase in gross margin. The Leisure Retailing Division also delivered solid overall sales growth, driven by new stores sales growth offset by a small decline in like-for-like sales growth though gross margins were lower than the previous year. Sports Retailing reported increased sales due to growth in both new store sales and like-for-like sales and these figures included the full-year sales from Infinite Retail. In July 2014, the group took a 50.5% stake in Infinite Retail resulting in the consolidation of results and net assets rather than the equity accounting in the previous year. Group net debt at $ 378.9 million which was $ 3.7 million lower than the previous year reflected the investment in the strong operating cash flow and continued investment in the store network and the multi-channel initiatives.


Shareholder Return (Source: Company Reports)
 

Auto retailing

 
Divisional sales at $ 854.3 million were 4.4% higher than the previous year and growth in like-for-like sales was 2.2%. Segment EBIT at $ 96 million was 1.6% higher than the previous year. The like-for-like sales growth was due to an increase in average unit value and the improvement in gross margin of 20 percentage points was driven by ranging and sourcing initiatives. Operating costs as percentage of sales increased by 30% over the previous year because of the higher operating expenses for stores. Membership of the Supercheap Auto Club Plus increased to 1.3 5 million with active members who have purchased in the last 12 months being 1 million. Sales involving club members are increasing and transactions tend to have a higher unit value than sales involving non-club members.
 
The focus of business continues to be sales and margin growth with particular emphasis on store refurbishment, private brand development and partnerships with the best automotive brands in the world. Nine new stores were opened during the year and 29 stores were refurbished including two conversions to superstores. At the end of June, there were 300 stores in Australia and New Zealand with a target of an additional 40 stores over the next three years. The trial of a new trade supply business Auto Trade Direct in the North Island of New Zealand supplying auto parts and accessories to mechanics has been completed and this business is being fully integrated into the Supercheap retail offering. This will allow an extension of the business into the Australian market over next year.
 

Leisure retailing

 
During the year, the group carried out a strategic review of the Ray's Outdoors and FCO businesses and it was decided to reposition the former business while closing the latter. Divisional sales at $ 543.2 million were 2.4% higher but like-for-like sales were 0.8% lower than the previous year. The segment EBIT result of $ 32.3 million was $ 5.8 million lower than the previous year and the margin was 5.9% which is 130 percentage points lower than the previous year. The decline reflected a reduction in gross margins and higher deposition costs due to new stores and the division's contributions to development programs. The BCF business was affected by the weaker retail market in Queensland but showed stronger like-for-like growth in the second half of the year.


Stock performance (Source: Company Reports)

Sports retailing

 
Divisional sales at $ 835 million was 13.8% higher than the previous year and segment EBIT at $ 65.6 million was 4.5% higher. Like-for-like sales growth at Rebel and Amart was 6.6% on the back of more customer transactions but gross margin declined by 100 percentage points reflecting strong growth in low margin categories, promotional activity and the first half excess inventory clearance. Overall, they contributed an increase of $ 7.8 million to the Sports EBIT of $ 73.8 million representing a margin of 9.4% which is 20 percentage points more than the previous year. Inventory at the end of the financial year was $ 161.8 million, 4.8% more than the previous year which can be attributed to increased private and exclusive brand sourcing with longer inventory lead times.
 
From the point of stock performance, SUP seems to have outweighed the ASX up till now in 2015 and there has been a 25% surge in the share price post the significant drop in 2014. The restructuring of businesses has been quite encouraging since then and have enhanced performance. There is a likelihood that rise in earnings for this stock in near future will help elevate the dividend yield (4.52% as of now). There is also some speculation about SUL looking for an equity raising for funding a major acquisition.


SUL Daily Chart (Source: Thomson Reuters)

Currently, the stock is trading at the price of $9.02.

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