Earnings Delight: Why the Super Retail Group Ltd share price rocketed higher today

The SUL share price has skyrocketed today on the back of a strong earnings result

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Super Retail Group Ltd (ASX: SUL) share price has soared 8.7% today after the retail business reported a net profit result of $74.4 million for the 26 weeks ended 31 December 2016, which represented a 65.7% improvement on the prior corresponding period (pcp). The SUL share price has now risen to $10.58, compared to a 52-week high of $11.19 previously.

The strong earnings growth was off the back of a 6.6% increase in half-year sales by the group to $1.3 billion, while like-for-like sales grew 5%. The like-for-like figure provides a better basis for understanding the performance of the underlying business because it strips out the contribution of new stores added in the past 12 months, which would naturally boost the sales result.

However, investors should note that the business' report did benefit from two primary factors:

  1. This reporting period's results were for the 26 weeks to 31 December 2016. By comparison, the prior comparative period's results were for the 26 weeks to December 2015, creating timing benefits in this half compared to the last. Super Retail Group said that these timing benefits contributed around $28 million to sales, $7 million to earnings before interest and tax (EBIT) and $45 million to operating cash flow, compared to the pcp.
  2. In the pcp, Super Retail Group incurred costs associated with brand name impairment, which acted to reduce earnings. When the impact of that one-off cost is excluded, the group's normalised first-half profit grew 26.3% compared to last year's result.

In relation to the first point above, it should be noted that the sales and EBIT timing benefits that were enjoyed by Super Retail Group in the first half will reverse in the second half of the financial year.

Zooming into Super Retail's performance during the first half, it was the company's Auto and Sports divisions that continued to perform strongly. Auto grew sales 6.9% while EBIT for that segment grew 10%. Meanwhile, sales in the Sports segment grew 8.5% and segment EBIT rose 19.5%.

The Leisure segment grew sales by 2.9% and EBIT by 53.7%, although those results were off a much lower base. However, like-for-like sales growth in the segment rose 5.8%. It also enjoyed a successful Christmas trading period following changes made to its pricing and promotion strategies with Super Retail Group reporting that its reinvigoration is beginning to deliver stronger results.

It will also be pleasing for shareholders of the business to learn that the business has enjoyed a strong start to the second-half, indicating a strong full-year earnings result could be in the pipeline. Like-for-like sales growth has been around 4% in Auto, 9% in Leisure and 2% in Sports for the first seven weeks of the period.

Foolish Takeaway

Today's results from Super Retail Group were impressive, but investors do need to be cautious. With the pending expansion of Amazon.com into Australia, businesses such as Super Retail Group as well as JB Hi-Fi Limited (ASX: JBH), Baby Bunting Group Ltd (ASX: BBN) and Harvey Norman Holdings Limited (ASX: HVN) could find that conditions become much more difficult to navigate. That's not to say I wouldn't buy any of them today, but investors should at least consider that before buying their shares.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Amazon. Motley Fool contributor Ryan Newman owns shares of Amazon. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »