The Super Retail Group Ltd (ASX: SUL) share price has soared 8.7% today after the retail business reported a net profit result of $74.4 million for the 26 weeks ended 31 December 2016, which represented a 65.7% improvement on the prior corresponding period (pcp). The SUL share price has now risen to $10.58, compared to a 52-week high of $11.19 previously.
The strong earnings growth was off the back of a 6.6% increase in half-year sales by the group to $1.3 billion, while like-for-like sales grew 5%. The like-for-like figure provides a better basis for understanding the performance of the underlying business because it strips out the contribution of new stores added in the past 12 months, which would naturally boost the sales result.
However, investors should note that the business' report did benefit from two primary factors:
- This reporting period's results were for the 26 weeks to 31 December 2016. By comparison, the prior comparative period's results were for the 26 weeks to December 2015, creating timing benefits in this half compared to the last. Super Retail Group said that these timing benefits contributed around $28 million to sales, $7 million to earnings before interest and tax (EBIT) and $45 million to operating cash flow, compared to the pcp.
- In the pcp, Super Retail Group incurred costs associated with brand name impairment, which acted to reduce earnings. When the impact of that one-off cost is excluded, the group's normalised first-half profit grew 26.3% compared to last year's result.
In relation to the first point above, it should be noted that the sales and EBIT timing benefits that were enjoyed by Super Retail Group in the first half will reverse in the second half of the financial year.
Zooming into Super Retail's performance during the first half, it was the company's Auto and Sports divisions that continued to perform strongly. Auto grew sales 6.9% while EBIT for that segment grew 10%. Meanwhile, sales in the Sports segment grew 8.5% and segment EBIT rose 19.5%.
The Leisure segment grew sales by 2.9% and EBIT by 53.7%, although those results were off a much lower base. However, like-for-like sales growth in the segment rose 5.8%. It also enjoyed a successful Christmas trading period following changes made to its pricing and promotion strategies with Super Retail Group reporting that its reinvigoration is beginning to deliver stronger results.
It will also be pleasing for shareholders of the business to learn that the business has enjoyed a strong start to the second-half, indicating a strong full-year earnings result could be in the pipeline. Like-for-like sales growth has been around 4% in Auto, 9% in Leisure and 2% in Sports for the first seven weeks of the period.
Foolish Takeaway
Today's results from Super Retail Group were impressive, but investors do need to be cautious. With the pending expansion of Amazon.com into Australia, businesses such as Super Retail Group as well as JB Hi-Fi Limited (ASX: JBH), Baby Bunting Group Ltd (ASX: BBN) and Harvey Norman Holdings Limited (ASX: HVN) could find that conditions become much more difficult to navigate. That's not to say I wouldn't buy any of them today, but investors should at least consider that before buying their shares.
