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3 reasons behind Super Retail Group Limited’s fall from grace

Super Retail Group Limited (ASX: SUL) shares opened more than 6% lower at $9.15 in today’s session, before recovering slightly to sit at $9.30 in early trading. Today’s fall sees the company now sitting 34% lower than in November when they hit a high of $14.09.

Here are three reasons why investors have turned their backs on Super Retail:

1. Weakening returns. Historically, the company has delivered strong returns (often in the double-digit growth rate) but earnings have been under pressure recently. When the retailer reported in February for its first half, it announced net profit growth of just 1.7%, which was well under consensus forecasts.

2. More pain. Shares opened lower today after the company released a trading update for May 2014, which revealed that its leisure division continues to struggle. In fact, over the last 18 weeks its BCF Boating Camping Fishing brand has experienced negative like-for-like growth. To make matters worse, growth in its sports division is also coming in below expectations.

3. Budget cuts. Retailers could be amongst the most affected sectors from the Government’s proposed budget cuts. Consumer confidence has taken a whack with speculation of higher income tax and cuts in government spending. Other retailers like Myer Holdings Ltd (ASX: MYR), JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN) have also taken a hiding in recent weeks based on these concerns.

Foolish takeaway

Although it might not have seemed like it recently, Super Retail Group is a quality stock to own for investors willing to remain patient. However, the retail sector is likely to remain volatile for some time, so you might be better off considering other investments. 

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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