Super Retail Group (SUL)
HOLD

Extended warranty

 17 Aug 2023
Sector: Consumer Discretionary

RESULTS ANALYSIS

Need To Know

  • Special dividend 25cps, final dividend 44cps.
  • FY23 group EBIT +10% in a gradually slowing sales environment.
  • SUL in good shape relative to a soft retail market.

Investment Implications

Result Overview:

Group EBIT $438m +10% on pcp, consensus $422m

EPS 121cps +12% on pcp, consensus 116cps

Final dividend 44cps, Special dividend 25cps, fully franked

FY23 result. Sales are holding up well in the key brands. Like-for-like sales in 2H23 at Supercheap Auto were +6% ending the year with momentum. Group gross margin fell 64bp in 2H23 (year on year), but is still ~100bp above 2H19 levels, although BCF fared worse at -180bp gross margin decline in FY23. SUL has harnessed the inventory situation that had the market uneasy throughout the year. This may limit gross margin pressure and assist in dealing with the higher operating costs that won’t go away.

As we anticipated, SUL declared a special dividend of 25cps alongside the final dividend. The net cash position of $192m at 30 June 2023 certainly gave the room to move. SUL continues to target a net debt to EBITDA ratio of 0-0.5x (pre AASB-16 basis).

The smallest brand, Macpac, is struggling with 2H23 EBIT down 33% and early FY24 sales down -9%. Peer brand Kathmandu (KMD Brands) has seen similar tough conditions knocking its share price down 21% year-to-date.

Online sales dwindled in FY23 as expected, but the breadth of SUL’s various Club Members loyalty program continues to bring in repeat customer sales. New store formats are being carefully trialled (rebel rCX) and BCF’s superstore format rolled out in Townsville are examples. The total store count increased by 20 in FY23 to 736 across Australia and New Zealand.

Outlook. No guidance was given for FY24, but SUL pointed to higher cost of doing business (as % of sales) due to higher wages (staff costs are half of total expenses), rent and electricity. Group and unallocated costs will be ~$43m. Capex will be around $150m which includes $19m left over from FY23.

The first six weeks of trading in FY24 have begun tentatively compared to last year as challenging economic conditions persist.

Investment View

The sales slide is happening in slow motion for SUL and is certainly better than the market had been thinking. The offset of higher operating costs leaves gross margin performance in limbo for now. While SUL attends to its store performance and keeping a lid on the inventory situation, the balance sheet is providing comfort.

The market may need to upgrade EPS forecasts by 3-6% on the back of this result, but we see no reason to change our Hold recommendation.

Figure 1: Inventory position

Figure 2: SUL Gross Margin and Cost of doing business

Figure 3: SUL FY23 result

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Stock Overview

Share Price

Company Overview

SUL sells auto, sports, and outdoor leisure products. It offers products such as automotive parts, sports equipment, camping gear, and boating supplies under brands like Supercheap Auto, Rebel, BCF, and Macpac.

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