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Why the Super Retail share price is rocketing today

The Super Retail Group Ltd (ASX: SUL) share price surged this morning on signs that it is weathering the impact of the bushfires and drought.

The retail group is the second best performer on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index with a 10.9% surge to $10.10 at the time of writing.

The only stock to beat Super Retail is the Smartgroup Corporation Ltd (ASX: SIQ) share price, which rallied 10.9% to $7.45.

Super Retail joins an elite group of consumer-exposed stocks that have been defying the retail gloom. These include JB Hi-Fi Limited (ASX: JBH) and Breville Group Ltd (ASX: BRG).

It’s all about sales

What’s getting investors excited about Super Retail is that it managed to deliver sales growth in the first half despite the challenging environment. There are also signs that things are getting better in the second half of FY20.

Interim group sales increased 2.9% to $1.44 billion while like-for-like sales growth across its network improved by 1.7%. Like-for-like sales are a key performance measure for retailers and it only includes stores that have been opened for at least a year.

The market was expected bad news and the top-line increases more than offset the 9.2% drop in underlying net profit to $74.1 million.

The super brands

The group’s auto accessories chain Supercheap Auto and sports store Rebel were the standouts. Sales at Supercheap increased 3.7% to $550.7 million as like-for-like growth gained 2.4% thanks to bigger average transactions.

Sales at Rebel jumped 3.6% to $542.8 million and like-for-like sales climbed 3.3%, which was driven by transaction growth and increased units per sale.

Both these brands also recorded a more than 20% increase in online sales and they contributed 89% of group earnings before interest and tax.

Black marks

The laggards are the outdoor gear stores BCF and Macpac. Both were impacted by the devastating bushfires, which happened during the peak trading period for the outlets.

More than 50 BCF stores were directly hit by the bushfires and drought but if these were excluded, like-for-like sales would have increased by a respectable 3%.

Macpac was harder hit. Like-for-like sales for the brand tumbled 7% and the bigger drop in the New Zealand dollar against the US currency put additional pressure on margins.

Improving outlook

However, trading conditions have improved markedly since January with like-for-like growth dipping 0.4%.

“Overall, it has been a positive start to the second half. Supercheap Auto and Rebel have traded well in the new calendar year, with accelerating like-for-like sales growth,” said the group’s chief executive Anthony Heraghty.

“Macpac’s performance has also improved with small format stores achieving positive like-for-like sales growth in the first seven weeks of the second half.

“The Group maintains expectations, assuming normal weather conditions, that Macpac second half EBIT will be higher than the $5.5m delivered in the prior comparative period.”

Super Retail held its interim dividend steady at 21.5 cents a share.

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Motley Fool contributor Brendon Lau 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.

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