Super Retail bucks market meltdown on back of strong result despite ‘brutal’ consumers

Super Retail has booked a strong result despite its boss noting shoppers are in a “brutal and volatile” state.

The opening of Rebel Sports new store in Penrith today 2nd December 2017. AAP/Image Matthew Vasilescu

Super Retail Group boss Anthony Heraghty believes shoppers are in a “brutal and volatile” state as they assess their household budgets against spending needs, and that as the retail sector goes through one of its biggest transformations in its history his business will up its investment in a wide range of operations from online to cyber security to protect its long-term earnings.

Unveiling Super Retail’s (SUL) fiscal 2019 results this morning, Mr Heraghty also told The Australian that Amazon remained a massive threat to local retailers, including his BCF, Rebel, Macpac and Supercheap Auto chains, and that the US retail giant’s power shouldn’t be underestimated.

Super Retail was nominated by many analysts as one of the biggest losers when Amazon arrived 20 months ago in Australia, but the company this morning posted strong sales and profits which helped its shares rally more than 6 per cent amid widespread carnage on the market.

Shares in Super Retail bounced 6 per cent this morning on the release of its fiscal 2019 performance and at noon were up 33 cents, or 3.8 per cent, at $9.01.

Super Retail has posted an 8.6 per cent rise in full-year net profit to $128.3 million as sales lifted 5.4 per cent to $2.57 billion. Pre-tax earnings increased 7 per cent to $314.7m. The result included $8.9m in expenses in relation to revision of wages underpayment estimates and remediation costs with a $9m in extra charges to EBITDA for 2020 to be booked due to a new wages agreement.

A trading update showed a mix performance for its businesses, with Supercheap Auto sales for the first six weeks of fiscal 2020 up 3 per cent, sales at Rebel better by 2 per cent, BCF was 5 per cent up and Macpac down 3 per cent with that fall blamed on a shift in the timing and duration of its winter promotion.

Mr Heraghty said the retail environment remains highly competitive as it faces structural disruption at an unprecedented scale.

“The retail market in Australia is going to be challenging for some time yet, I think you still going to have a pretty brutal and volatile customer and the industry is still going through it’s single biggest transformation since its inception and as we consider online, role of technology, costs etc, I wouldn’t declare that we are through that period in any way, shape or form.’’

This has seen Super Retail up its investment in its own capabilities and operations to cope with this level of disruption and ultimately benefit from it as well.

“The area we are focused on is investing in the business to deal with that change, we are seeing our depreciation (costs) increase, it has gone up 16 per cent in this period, and that’s invested in the business, so we have not only invested in our core store network, invested in e-commerce platform, we have rebuilt our integration systems, we have even set up new product information management, we have had to strengthen in cyber security — which if you think about it that is a concept that would be foreign to retailers ten years ago — we had to invest heavily in the business to be able to navigate this change in the market.’’

Turning to the results, Supercheap Auto, which accounts for more than half of its earnings, posted sales increase of 3.4 per cent to $1.04bn as EBIT rose 5.3 per cent to $120.6m.

At its Rebel chain sales were up by 3.8 per cent to $1.016bn as EBIT lifted 2.5 per cent to $93.8m. Key categories of apparel and footwear delivered solid sales growth and fitness accessories also performed well.

At Boating Camping Fishing (BCF) sales rose 3.3 per cent to $514.6m but earnings fell from $27.3m to $20.8m as heavy discounting in the sector and strong competition pinched profitability.

Its recently acquired Macpac business improved sales from $81.5m to $138.8m as its business was fused together with Rays with earnings hitting a combined $13m from $2.3m in 2018.

Super Retail declared a fully franked final dividend of 28.5 cents per share, up from 27.5 cents, payable September 26.