The Super Retail Group Ltd (ASX: SUL) share price had been a strong performer in early trade on Tuesday following the release of a couple of key announcements.
In early trade the retail group’s shares were up over 8.5% to $8.54, but at the time of writing are now up just 2% to $8.01.
What was announced?
Starting with the negatives, this morning Super Retail advised that it will make back payments to retail managers after completing a comprehensive review of employment arrangements across the business.
The review identified an underpayment of overtime and some allowances to retail managers. As a result, Super Retail will recognise approximately $32 million pre-tax to cover the estimated cost of back payments to retail managers for the six financial years up to and including FY 2018.
In light of these serious underpayments, Super Retail’s managing director and chief executive officer, Peter Birtles, has offered to resign and the board has accepted. He will leave the company ahead of schedule on February 20 and be replaced by Anthony Heraghty. Mr Birtles was already due to retire in March and be replaced by Mr Heraghty.
On a normal day this news might have been enough to sink a share price, but fortunately for shareholders a positive trading update has offset this negative news.
According to the update, the company expects to report total sales of $1.4 billion in the first half, up 6% on the prior corresponding period. Unaudited EBITDA was $166.2 million during the half, up 11.3% on the prior corresponding period.
All segments delivered growth during the period. The Auto segment posted 2.5% EBIT growth, the Outdoor segment achieved 39.6% EBIT growth, and the Sports segment saw EBIT increase 5.2%.
A key driver of growth was its online operations. Management explained that it was “pleased to maintain strong growth in our online sales as we leveraged the re-platforming of all of our websites. Online sales, as a proportion of overall sales, increased in all businesses and for Rebel now represents 11 per cent of overall sales.”
Pleasingly, the overall strong form has continued so far in the second half with management advising that the majority of its businesses have delivered positive sales growth.
“Like for like sales growth has been circa 4 per cent in Supercheap Auto over the first six weeks of the second half. BCF has delivered circa 8 per cent like for like sales growth over the same period, while Macpac has been circa 2 per cent below pcp, as the business is cycling a significant clearance program in the prior comparative period. Like for like sales growth in Rebel has been 8 per cent over the six weeks.”
Should you invest?
While the underpayments news is very disappointing, I was pleased with the company’s performance in the first half and believe its shares are very attractively priced based on this result.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool Australia owns shares of Super Retail Group Limited. The Motley Fool Australia has recommended Accent Group. 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 Scott Phillips.