By Patrick Hatch
The retailer behind Rebel Sport has bought adventure apparel chain Macpac and will merge it with its existing Rays business to create a new outdoor powerhouse to rival market leader Kathmandu.
But it was Super Retail Group's investors who packed their bags and headed for the hills on Tuesday amid scepticism about the Macpac purchase and disappointment over the company's first-half earnings. Its shares plunged as much as 15 per cent to their lowest level in more than two years.
Super Retail will pay $135 million for Macpac.
Super Retail, which also owns Supercheap Auto and BCF (Boating, Camping, Fishing), said its $135 million investment in Macpac would let it target the $2.2 billion "adventure consumer" market made up of bushwalkers, mountain climbers, skiers and travellers who shop at Kathmandu and The North Face.
Macpac, founded in Christchurch in 1973 and previously controlled by Kathmandu founders Jan Cameron and Bernie Wicht, has 54 stores across Australia and New Zealand, while Rays has 15. The two will be merged and operated under the Macpac brand.
Super Retail chief executive Peter Birtles said the new business could open about 95 stores over the next five years, mostly in a small-store formats and with about 20 big-box stores that stocked a wider range of brands and products.
Kathmandu has about 164 stores across Australia and New Zealand and had total sales of $447 million last year.
Mr Birtles said the concept had been tested with pleasing results at Rays, which over the past year and a half had moved out of fishing, caravan and 4WD products and started stocking adventure apparel brands like Patagonia, Jack Wolksin and MSR.
Super Retail reported a 1.4 per cent fall in earnings. Credit: Bloomberg
“We see a significant opportunity that sits in the market at the moment for someone to offer a complete solution for outdoor adventure enthusiasts and casual participants," Mr Birtles said.
He said Macpac's vertically integrated model, in which it made and sold its own branded products, would be crucial to its success, while Super Retail's other chains, such as Rebel Sport, could benefit from its expertise in this field.
Super Retail will continue to service family campers, fishers and 4WD enthusiasts through its 136 BCF stores.
But the debt-funded purchase was met with a chilly response, with Morgan Stanley analyst Tom Kierath asking why Super Retail was "doubling down" in the outdoor market when it had been the worst-performing segment of its business.
Credit Suisse analyst Grant Saligari questioned the sale price - close to double the $70 million private equity firm CHAMP Ventures paid for a 90 per cent stake in late 2015.
Citi analyst Bryan Raymond said the market would be sceptical of the Macpac purchase given write-downs on Super Retail’s previous acquisitions. It was being bought from private equity for a relatively high price and would deliver only mid-single digit earnings growth, he said.
"We’re very comfortable with the price we paid for this business - we think it’s good value," Mr Birtles said, adding that Macpac's sales were growing at 20 per cent a year and heading towards $NZ95 million ($88 million) annually.
Super Retail said on Tuesday that its net profit fell 3 per cent to $72.2 million in the six months to December 30, which was 5 per cent lower than the market had forecast.
Earnings fell in its outdoor and leisure businesses, with BCF cutting prices to remain competitive and Rays running at a $3.5 million loss because of its "sub-scale" business and trial of a new format.
Profit margins came under pressure in all divisions, while sales were disrupted by converting Amart Sports stores to the Rebel brand, the company said.
In-store sales had been broadly flat during the half but there had been significant growth in online sales as it improved its digital and omni-channel capabilities.
Super Retail shares closed down 14.5 per cent at $7.03 - the lowest they have traded since December 2015. The company announced a 21.5¢ interim dividend.