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Super Retail Group Limited lifts 7%: Should you buy?

What: Super Retail Group Limited (ASX: SUL), the owner of brands like Supercheap Auto, Ray’s Outdoors, BCF and sports retailer Rebel, delivered an impressive set of results for the 12 months ending June 30. Shares rose as high as $9.33 by mid-morning, 7% higher than yesterday’s closing price. In comparison, the benchmark S&P/ASX 200 Index (INDEXASX: XJO) has risen just 0.7%.

So What: It’s been a tough few months for investors in the retail sector as a harsh federal budget resulted in industry-wide falls in sales. After having downgraded its profit forecast in June as a result of this, the company said like-for-like sales in the first six weeks of this financial year had improved strongly compared to the last eight weeks of FY14. Given the market’s strong reaction this morning, investors are obviously confident the worst conditions are now in the past.

Here are some of the highlights from today’s result…

  • Group sales rose by 4.6% to $2.11 billion
  • Net profit jumped 5.6% to $108.4 million (the upper end of the company’s June guidance which forecast profits to be between $107-109 million)
  • An 8.7% increase in EBITDA to $237.5 million
  • Earnings per share (EPS) rose 5.3% to 55.1 cents
  • Final fully franked dividend of 21.5 cents, taking its full-year dividend to 40 cents, fully franked

The strong result was largely boosted by Super Retail Group’s Auto Retailing Division, which recognised divisional EBIT growth of 8.5% to $94.5 million. Unfortunately, this was partially offset by relatively weak results from its Sports Retailing and Leisure Retailing divisions which both experienced slight falls in underlying profits.

Now What: Looking ahead, the company expects to see strong growth in the second half, but only modest growth in the first half as a result of recovering consumer confidence. The strength at which sales grew in the first-half of last year could also impact how strongly it can grow this year. With plans to open a further 20-30 stores over the coming year, in addition to refurbishing between 70-80 stores across the group, shareholders could be in for a solid 12 months.

Should you buy Super Retail Group?

Although the shares have risen strongly today, there is still an excellent opportunity for long-term investors to pick up shares at a reasonable price. Trading at $9.33, the shares remain almost 34% below their 52-week high.

Another company I am even more bullish on is one that the Motley Fool's top analyst, Scott Phillips, recently identified. With strong growth prospects and a fat, fully franked dividend yield, this could be the 'story stock' of 2014! Get The Motley Fool's #1 pick now in our newly updated investment report. It's yours FREE. Simply click here for your copy of "The Motley Fool's Top Stock for 2014."

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

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