Super Retail Group (ASX: SUL) has seen its shares slammed, losing more than 20% in early morning trading, despite reporting a 6% increase in sales for the first half, compare to the previous year.
But that's what happens when a stock trading on a high P/E ratio fails to live up to its high expectations. Super Retail was trading on an historical P/E of 24.4, prior to today's fall at $12.57. Shares have dropped below $10 at the time of writing.
The company that owns Super Cheap Auto, Rebel Sports, BCF, Goldcross Cycles and Amart All Sports amongst other brands, reported sales of $1.1 billion for the six weeks to December 28 2013. Across its divisions, Auto reported 3.7% total growth, Leisure an impressive 8.1% and Sports 6.2%. But much of that growth came from new store openings, with same store sales well below those levels.
Super Retail expects to report a net profit after tax of between $61 million to $62 million for the six months to end of December 2013, an increase of just 0.7% to 2.3% over the previous corresponding period. That's well below the 23% profit rise the company reported for the full 2013 financial year.
Chief executive Peter Birtles said the overall result was below expectations, and reflected a number of short term internal challenges across all its divisions. Mr Birtles said the implementation of new IT systems in October and November had impacted all businesses, but have now been resolved. Supply issues dogged its Auto division.
What is surprising is that the company says it had been negatively affected by the slowdown in the mining sector. It seems miners are being more conservative with their cash, given the uncertainty in that sector as miners cut back on spending, sack staff and focus on their core operations to reduce costs.
That could see other retailers affected such as bull bar maker ARB Corporation (ASX: ARP), Metcash (ASX: MTS) – part owner of Autobarn, an auto accessories retailer, AMA Group (ASX: AMA) and Supply Networks (ASX: SNL).
Foolish takeaway
Companies trading on high P/E ratios can see their share prices hit hard if they fail to meet the high expectations of investors. Despite the high quality of Super Retail's businesses, buying shares at high prices can be damaging to your wealth.
