Why the Super Retail Group Ltd share price is down 28% this year

Credit: sling@flickr

The share price of Super Retail Group Ltd (ASX: SUL) fell 0.7% by lunchtime on Tuesday.

While the overall market is also weak with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) slipping 0.3% after spending the morning in positive territory, it’s a report in the Australian Financial Review (AFR) which might explain the selling pressure on Super Retail today.

According to the AFR article, research conducted by broker Citi suggests that the entry of France-based sports retailer Decathlon into the Australian market has the potential to shave around 7% off the profits of Super Retail’s Rebel and Amart sports retailing chains.

Decathlon’s entry will make for an interesting case study in the wake of the dramatic failure of Woolworths Limited (ASX: WOW) to execute its plans to establish a viable home improvement business (Masters) to rival the Bunnings business, which is owned by Wesfarmers Ltd (ASX: WES).

Investors will also be watching Decathlon closely as they weigh up the potential for Wesfarmers to successfully expand its Bunnings brand into the UK.

Of most interest however will be determining whether Decathlon can “do an Aldi” and successfully bring its concept and business model to the domestic market.

If Australian shoppers do find Decathlon’s offering appealing then there’s the possibility that it will put pressure on the margins and growth potential of Super Retail’s sporting brands in the same way that Aldi has taken market share from incumbents Coles, Woolworths and IGA.

Since the beginning of calendar year 2016 the share price of Super Retail has fallen 28% and it is currently trading within a whisker of its 52-week low. At these levels the stock is trading on a forward price-to-earnings multiple of around 15 times and a dividend yield near 5% (according to data supplied by CommSec), which is a level below both its consumer discretionary peer group and the wider market.

The market appears to be discounting the outlook for the group, however, consensus forecasts for growth remain strong, making the current pricing of the stock interesting.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. 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.

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