Why Super Retail Group Ltd shares could come under selling pressure

Credit: Ryu Voelkel

I’m sure it is fair to say that the expansion of Aldi into Australia has given shareholders of Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) the occasional sleepless night.

In fact, only today Woolworths announced major changes to its Homebrand in an effort to improve its competitive position in the supermarket space after losing ground to its rivals.

The threats posed by multinational low cost retailers are real and things may be about to get worse for Australian retailers. It was reported today in the Australian Financial Review that French retailer Decathlon is planning on expanding into Australia.

Decathlon is the world’s largest sporting goods retailer. It has 1,031 stores worldwide and could be set to roll out as many as 35 warehouse-style superstores in Australia over the next decade.

The first step for the company will be an online store dedicated to Australian consumers which is expected to go live here later in the week. After which I would expect a gradual roll out of its warehouse stores across the country as it builds up its brand with Australian consumers.

One company that I feel should be very concerned is Super Retail Group Ltd (ASX: SUL). Super Retail operates two of Australia’s largest sporting goods retailers in Amart and Rebel Sport. I feel these two brands could soon be faced with a loss of market share to Decathlon.

This will be very bad news for Super Retail as its sporting goods segment has been a real winner for it during a challenging period and contributes 37% of total sales.

In its recent half-year results the sports segment produced sales of $452 million and earnings before interest and tax of $43 million. This was a year-over-year rise of 7% and 9.5%, respectively.

According to CommSec, analysts are anticipating earnings growth of 10% per annum for the next two years. I do worry now that Decathlon’s entry into Australia could put this growth at risk and possibly stifle any significant share price gains.

Super Retail’s shares are down almost 26% so far in 2016. This could of course mean the share price has a lot of turnaround potential, but with the imminent arrival of Decathlon it might be best to be cautious with this one now.

BRAND NEW! Our Top Dividend Stock for 2016 could be a better option than Super Retail Group.

Our resident dividend expert names his Top Dividend Share for 2016. Not only are the shares dirt cheap, the company is trading on a 5.6% fully franked dividend yield. Simply click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required!

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.