Despite a rather lacklustre set of results released by Super Retail Group Ltd (ASX: SUL) on Thursday, investors have reacted rather positively, boosting shares by just over 6.6% since.
While the group has historically delivered strong returns, often in the double-digit growth rate, net profit fell short of consensus forecasts rising just 1.7% for the December half to $61.6 million. The market had been expecting a profit of roughly $63 million since the forecast was cut by $10 million following a trading update in January. The company's CEO, Peter Birtles, admitted: "The overall result is below expectations both externally and internally."
The company's leisure division acted as the main drag on the group's overall result with earnings declining by 8.3% to $24.4 million due to reduced demand for fishing, camping and other leisure outdoor equipment. Stronger performances from its Rebel Sports and Amart sports stores, as well as its Super Cheap Auto business, helped to offset the decline with the divisions' earnings growing by 5.5% and 9.5% respectively.
Investors likely reacted positively to the group's increased dividend distribution and also to the positive outlook provided by Birtles. While it increased the interim dividend by 9% to 18.5c per share, Birtle stated that ill-timed discounting, excess inventories and the aggressive rollout of new stores (which cannibalised sales at existing stores) had negatively impacted its leisure division. Birtles said: "Given those issues are under our own control we are confident we can maintain our focus… and going forward return to the level of performance we've been accustomed to."
On the other hand, the company could struggle against a rising level of competition while margins could also be at risk due to the falling Australian dollar.
Here are some of the other highlights from the report:
- $37.3 million invested in new and refurbished stores, as well as a further $39.2 million in supply chain network and multi-channel platforms
- Revenue increased by 5.8% to $1096.5 million
- Net debt fell $35.9 million to $293.4 million
- Continued improvement in Team Member retention (this often overlooked point is fantastic for any business as it decreases training and development costs and reflects a better working environment)
Foolish takeaway
Although Super Retail Group is a high quality company, it is trading on a P/E ratio just under 19 despite sitting considerably below its 52-week high of $14.10. Since the beginning of the year, the company's shares have fallen 12.5%, while the broader S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has climbed 1.7%.
