Christmas wrap
TRADING UPDATE
Need To Know
- Inventory normalising
- Sales growth solid through Christmas
- Margins likely better than consensus thinking
Super Retail Group’s Christmas trading update has cheery news for the retail sector. SUL’s sales were good and, more importantly, the worrisome inventory position is beginning to normalise.
We previously noted that SUL’s 1Q23 sales release (October 2022) did not reflect the reality of the sales momentum. The 3-year average growth rate was pointing to solid underlying trends that have arguably re-emerged with this latest trading update.
Sales growth for 1H23 has been uniformly solid with the exception of a more modest outcome at BCF (see Figure 1). We think the market is probably too bearish on the near-term sales performance as SUL is demonstrating.
SUL’s profit before tax margin of 11% (at the mid-point) is only slightly down on last year but well ahead of what consensus has been biting its nails about. We are anticipating a more modest gross margin outcome for the result announcement in February and for operating leverage to contribute to better margins.
Importantly, inventory levels are dwindling to more normal levels. Most of the inventory build-up had been in Supercheap Auto. Inventory units have been dropped by one month and the company is on track to reduce this further across the year.
Investment view
A nervous market should react positively to this information. Retail stock watchers have been anxious about over-stocked companies for some time with concerns over softening sales growth into 2023. Assuming the trend is sector wide, these concerns should be allayed.
Figure 1: 1H23 sales growth
Figure 2: Provisional 1H23 result
Stock overview
Share Price
Company overview
Super Retail Group encompasses the Supercheap Auto, Rebel, BCF, and Macpac retail brands.
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