Super Retail Group Ltd (ASX: SUL) provided investors with a positive trading update yesterday, stating that sales and profit performance were in line with group expectations, including strong like-for-like sales growth.
Indeed, like-for-like sales growth is an important measure for retailers as it excludes the contribution made by new stores and acquisitions. In other words, it provides a clearer comparison for a company's performance to that of the prior year (or quarter or half year) as it excludes events that could artificially enhance sales.
Super Retail Group said that like-for-like sales growth in its Auto Retailing division had grown by 3%, while overall division sales were up 5%. Same-store sales grew 5% in both its Leisure Retailing and Sports Retailing divisions, with total sales increasing 6% and 7%, respectively.
Pleasingly, margins also improved in the Auto and Sports divisions due to a solid sales performance despite lower levels of promotional activity. Unfortunately, margins were lower in the Leisure division.
Should you buy?
Although I like a number of businesses owned by Super Retail Group, including Rebel and Amart Sports, I'm not inclined to buy the company's shares anytime soon. This is largely due to the headwinds facing the retail industry, and the Australian economy as a whole.
To begin with, Super Retail Group could be hurt by a falling Australian dollar (making imports more expensive) while sales could also take a hit in the event of an economic downturn. Indeed, expensive sportswear and outdoor equipment (from Ray's, recently rebranded from Ray's Outdoors) are items consumers tend to cut back on when times get tough.
If I was to buy shares in any retailer right now it would be Retail Food Group Limited (ASX: RFG). The company owns various food brands such as Gloria Jean's coffee and Pizza Capers, both of which I believe could maintain strong sales even during a downturn (people still want their coffees on the way to work, and buying takeaway might be a less stressful option than cooking).
The shares are trading at a considerable discount to their 52-week high and offer a very compelling fully franked dividend yield.
