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Super Retail share price tumbles 8% lower on first half trading update

The Super Retail Group Ltd (ASX: SUL) share price has started the week on a disappointing note.

In early trade on Monday the retail group’s shares are down almost 8% to $8.99.

Why is the Super Retail share price tumbling lower?

Investors have been selling the retailer’s shares this morning after it provided an update on its trading during the first half.

According to the release, Super Retail achieved group total sales growth of 2.9% and like for like sales growth of 1.7% during the six months. This was despite the negative impact that bushfires and the drought have had on peak trading periods.

Over the half the Super Cheap Auto and Rebel brands were the standout performers.

The Super Cheap Auto business delivered a 3.8% increase in total sales and a 2.4% lift in like for like sales.  Whereas the Rebel business posted a 3.6% lift in total sales and a 3.3% increase in like for like sales.

This offset an underperformance by the BCF and Macpac brands. BCF posted total sales growth of 0.8% and a 0.5% decline in like for like sales. And Macpac reported a 1% decline in total sales and a sizeable 7% reduction in like for likes sales.

Super Retail’s managing director and chief executive officer, Anthony Heraghty, explained: “After a strong start to our peak trade season with higher year-on-year trading across the Black Friday and Cyber Monday online events, the bushfires and sustained drought conditions have impacted December trading. Whilst we expect the impact to be one-off, it is difficult to estimate how long it will take for sales to recover, specifically in the outdoor category.”

Bushfire impact.

The release reveals that more than 50 BCF stores were directly impacted by fire and/or drought.

Furthermore, the bushfires and associated smoke haze coincided with BCF’s peak holiday trading period. This led to a downturn in customer demand for outdoor products, particularly in the camping category.

The bushfires also forced the temporary closure of BCF stores and disrupted trading hours and team member availability. BCF stores not impacted by fire/drought delivered 3% like for like sales growth for the half.

It was a similar story for the Macpac business. Like for like sales declined by 9.5% in Australia, with its NSW and Victorian stores heavily impacted.

Macpac Adventure Hub stores, which have a more extensive camping and hiking offering, experienced even more substantial like for like sales declines.

Finally, Super Cheap Auto’s sales were also impacted, particularly in regional stores in NSW, Victoria and Queensland. And Rebel saw a slowing of sales momentum in NSW post week 16.

Earnings impact.

In light of the above and higher labour costs, management expects its first half earnings before interest and tax (pre-AASB 16) to be between $113 million and $115 million. This compares to earnings before interest and tax of $124.5 million during the first half of FY 2019.

Positively, Mr Heraghty appears optimistic on the company’s prospects in the second half.

“While first half earnings were challenged by exceptional circumstances, there are a number of positives in the expected result that bode well for the second half,” he concluded.

These include strong online sales growth, gross margin momentum in the Super Cheap Auto business, and supply chain cost reductions.

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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 Super Retail Group Limited. 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.