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Super Retail Group: The super retailer?

Super Retail Group Ltd (ASX:SUL) seem to be bucking the trend of falling sales and falling share prices that are apparent in many retail businesses.

While David Jones Limited (ASX:DJS) and Myer Holdings Limited (ASX:MYR) have seen falling sales and falling share prices (both David Jones and Myer share prices have fallen more than 50% below their 52 week high), Super Cheap reported on the 9th January 2012 that Group Sales had increased by more than 35 per cent (including contributions from Rebel Sports and Amart All Sports). Super Retail’s share price has fallen, but only by 23%, from a 52 week high of $7.49 down to $5.75.

Even better, like-for-like sales had increased in all its divisions over the previous corresponding period. The market certainly liked the news, pushing the shares up 2.2 per cent to $5.58 in a flattish market.

Super diversified
Through some well recognised brand names, Super Retail Group is engaged in the retail of auto parts and accessories, tools and equipment; as well as boating, camping, outdoor entertainment and fishing equipment and apparel. It is also active in the wholesale, retail and distribution of bicycles and bicycle accessories.

What makes Super Cheap different?
There is a noticeable lack of large competitors in its markets. Rebel Sport has a 25 per cent market share. The outdoors and auto parts markets are fairly fragmented, with some businesses focusing on niche product areas, such as Barbeques-Galore, or local mom and pop sports / outdoor stores. Several of its potential competitors, like Kathmandu Holdings Limited (ASX:KMD) are struggling. Others, such as Strathfield Group (ASX:SRA) are on life support and Colorado Group has already collapsed.

  • The company’s fortunes are indirectly linked to the mining boom with the Queensland BCF store in Mackay reporting $10m in sales compared to the average store sales of $5m. According to CEO Peter Birtles, regional Queensland stores are the stronger trading stores.
  • Its products are targeted at hobby and leisure activities, and from the results announced, people seem like they are still willing to spend money on those products.
  • The bulky nature of its goods (kayaks, outdoor settings and tents for example), don’t really lend itself to competitors setting up websites selling these types of products. The business has high barriers to entry, which gives Super Retail a competitive advantage.
  • It typically doesn’t operate stores in large shopping centres, so doesn’t have to pay exorbitant rents to the likes of Westfield Group (ASX:WDC) and CFS Retail Property Trust (ASX: CFX).
  • It offers members clubs with Rays Outdoors VIP Club, BCF Club (750K+ members), Rebel Group Loyalty program (700k+ members). The company will start offering a loyalty program for the Super Cheap Auto business in 2012.

Super Retail clearly spotted a gap in the market, and have been busy filling it ever since. I expect an announcement fairly soon in regards to expansion into New Zealand. There is still room for Super Retail to expand further in Australia. The company plans to extend Super Cheap Auto stores from 274 currently to over 320, and have plans for 185 BCF and Rays Outdoors stores, up from an existing total of 128 (78 BCF stores and 50 Rays Outdoors).

I value the company at between $5.50 and $5.90. At the current price of $5.72, it’s trading at about fair value. Super Retail has grown successfully over the last seven years – ever since its listing in 2004. I expect it to continue growing in the years ahead.

Risks
Super Retail doesn’t seem to be affected much by downturn in the greater retail sector, although this could change very quickly.

The mining boom crashing back to earth could see sales in its Queensland regional stores and other areas collapse.

Its foray into bicycles is struggling, but Super Retail seems keen on hanging onto this division, with growth predicted to come in future years. Whether the growth will come is the question.

The Foolish bottom line
Super Retail is a stock to watch, and one on the radar. It appears to have been lumped in with all the other retail stocks, and the share price has suffered as a consequence (although not as much).

Any further falls in the price with no negative news may mean an opportunity to buy this stock at a discount.

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Motley Fool contributor Mike King does not own shares in Super Retail.   The Motley Fool ’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.   Click here   to be enlightened by The Motley Fool’s disclosure policy.

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