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Is it time to buy Super Retail Group?

Super Retail Group (ASX: SUL) is a specialty retailer with its network spanning every state of Australia. The company is structured with three main retail divisions, namely the Auto & Cycling Division, the Leisure Division and the Sports Division.

The company has steadily grown organically and by acquisition over several years. A recent such addition is the Workout World business, which was acquired last month and will become part of the Sports Division. This addition will provide the opportunity for the company to build on its existing fitness products business.

There is a strong emphasis on branding, with a wide variety of store formats, including Supercheap Auto, Amart Sports, Boating Camping Fishing, Fishing Camping Outdoors (in New Zealand), Goldcross Cycles, Ray’s Outdoors and Rebel Sports. Super Retail Group stores typically have a warehouse structure, stocking over 10,000 products predominantly priced at the lower end of the market with an offer to beat any price.

A rising proportion of house brands helps reduce the cost of goods and boost margins. New stores are opening at a rate of roughly 30 per annum. Super is further streamlining its supply chain via measures such as increased direct sourcing from Asia and the establishment of a more efficient national distribution centre network.

The company has built a robust business platform that can be leveraged via further acquisitions. There is a heightened focus on reducing staff turnover. Super is investing in the sales skills and product knowledge of staff, and has established its own Business Leadership Academy.

Debt to equity is a little on the high side at 48.1% with interest cover only 7 times. However, over the last five years return on equity has always been above 12%. Earnings per share have increased for each of the last five years from 28.3 as at June 2009 to 57.6 for June 2013. Likewise, dividends for the same period have grown progressively from 17 cents to 38 cents for full years 2009 and 2013.

Foolish takeaway

Super is a company that is continually expanding its range of products and warehouses leading to ongoing increases in earnings.  This successful business should be considered for the long term investor interested in having relatively broad exposure to the retail market in Australia and New Zealand.

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Motley Fool contributor Chris Koenig does not own shares in Super Retail Group. 

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