Why the Super Retail (ASX:SUL) share price is surging higher today

The Super Retail Group Ltd (ASX:SUL) share price is surging higher following the release of a trading update this morning…

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A happy shopper with lots of bright shopping bags, indicating a positive surge for ASX retail share price

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The Super Retail Group Ltd (ASX: SUL) share price has been surging higher following the release of a trading update.

In morning trade the retail conglomerate’s shares are up 5.5% to $12.40.

How is Super Retail performing in FY 2021?

Today’s update reveals that Super Retail has been performing very positively so far in FY 2021.

For the 26 weeks ending 26 December 2020, Super Retail delivered a record result which was driven by unprecedented consumer demand.

According to the release, group sales increased 23% over the prior corresponding period and 24% on a like for like basis. This was supported by an impressive 87% jump in online sales to $237 million, which represents 13% of total sales.

Pleasingly, the company has seen its gross margin increase 270 basis points over the prior corresponding period, which has supported higher earnings before interest and tax (EBIT) margins across all four core brands.

This is expected to lead to EBIT of $253 million to $256 million for the first half of FY 2021. This will be an increase of 119% and 122% than the same period last year.

And on the bottom line, normalised net profit after tax is expected in the range of $174 million to $177 million. This represents a 135% to 139% increase on the first half of FY 2020.

How are its businesses performing?

The Supercheap Auto business has performed strongly and delivered a 20% increase in both total and like for like sales during the six months. Online sales grew 46% over the prior corresponding period.

Also performing strongly was its BCF business. It reported a 51% increase in both total and like for like sales. Online sales grew at an even quicker rate of 113% during the half.

Supporting this growth was the Rebel business, which achieved total sales growth of 15% and like for like sales growth of 17%. This includes the impact of the Infinte Retail closure. Online sales doubled during the period.

Finally, the one disappointment during the half was its Macpac business once again. It reported a 5% decline in total sales and a 3% reduction in like for likes sales. Positively, online sales increase 94% over the prior corresponding period.

Super Retail’s Group Managing Director and Chief Executive Officer, Anthony Heraghty, was very pleased with the half.

He commented: “Since our last update to the market in October, the Group has continued to perform well. We are particularly pleased with our record online sales over the November cyber weekend and strong Christmas trading. This has culminated in a record first half performance for the Group.”

“The successful execution of the Group’s omni-retail business strategy and the effectiveness of our supply chain and inventory management have been instrumental in fulfilling large volumes of customer orders and delivering a strong result for the first 26 weeks of trading.”

“The operating leverage which the Group has been able to achieve during a period of robust online sales growth clearly reinforces the profitability of our digital sales and, in particular, the scalability of our omni-retail platform,” he added.

Outlook.

Mr Heraghty spoke positively about the company’s prospects in the second half.

He explained: “Strong cashflow generation leaves us well placed in the second half to reinvest in our brands to maintain our customer value proposition, expand and reward our customer base, consolidate our market-leading positions and grow our market share. As inventory levels are restored during the second half, following a period of unprecedented consumer demand, we expect the level of promotional activity to increase.”

“While we remain cautious on the outlook for the second half given the uncertain economic environment, the Group has a resilient business model, underpinned by powerful brands with market-leading positions in growing lifestyle categories, an active customer base of 7.1 million loyalty club members and a conservative balance sheet with a strong cash balance and no net bank debt,” he concluded.

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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 Super Retail Group Limited. 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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