Why the Super Retail Group Ltd share price soared 11% today

Credit: sling@flickr

Diversified retail giant Super Retail Group Ltd (ASX: SUL) has impressed the market today with its trading update, reporting a strong lift in like-for-like sales compared to the same period from last year.

The shares soared as much as 11.8% to a high of $9.36 shortly after the market opened.

With a market value of almost $1.7 billion, Super Retail Group is the owner of sporting chains such as Rebel and Amart Sports, together with Supercheap Auto, Rays (formerly Ray’s Outdoors), BCF and Goldcross Cycles.

Measuring the results from the 44 weeks to 30 April 2016 the group said sales had grown by 6% and 5.5% in its auto and leisure retailing divisions respectively (compared to the same period from last year), while sports retailing had grown by 9%. Pleasingly, most of that came from organic growth with like-for-like sales up 4.5%, 4.5% and 6% across those divisions, respectively.

As can be seen in the chart below, however, those growth figures appear to be gaining momentum. In the final 18 weeks of that period, like-for-like sales in the auto and leisure retailing divisions grew at an elevated pace compared to the beginning of the period, while comparative sales in sports retailing held steady.

Source: Super Retail Group

Source: Super Retail Group

That is what investors love to see, and is likely one of the major reasons behind today’s share price rally.

The company’s Managing Director and CEO, Peter Birtles, said: “This performance reaffirms our confidence in the Group’s strategy of focusing on improving the customer experience across our physical stores and digital channels, extending our offering into services, collaborating with trade partners to provide innovative and exclusive products and brands, improving the capability of our supply chain and technology and investing in engaging and developing our team.”

Despite today’s strong lift in share price, Super Retail Group’s shares are still trading significantly below the high levels they reached as recently as December. Indeed, they could be worth a closer look, especially after the RBA slashed interest rates on Tuesday which could lead to an increase in consumer spending.

Other retailers such as JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN) could also benefit from this trend.

However, it is also important to remember the potential risks including currency headwinds and growing competition, including from the likes of French retailer Decathlon. It is vital that Super Retail Group continues to focus on the customer and maintains competitive pricing to ensure it doesn’t become irrelevant in the space.

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Motley Fool contributor Ryan Newman 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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