In morning trade the Super Retail Group Ltd (ASX: SUL) share price has crashed 17% lower to $6.80 following the release of its half-year results.
For the six months ended December 30, the retail conglomerate achieved sales of $1,324.1 million and a normalised net profit after tax of $74.9 million. This was a 2.2% and 0.7% increase, respectively, on the prior corresponding period (PCP).
This ultimately led to diluted earnings per share of 36.3 cents and a fully franked interim dividend of 21.5 cents per share.
The main driver of the company's growth was its Auto segment. During the half Super Retail's Auto segment delivered total revenue growth of 5.6% to $516.8 million and earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 4.6% to $71 million.
LFL sales in the segment rose 3.5% during the period thanks to solid growth across its Auto Accessories, Auto Maintenance and Tools & Outdoor categories. Pleasingly, the Auto segment saw a 128% increase in digital sales during the half, increasing its market share of digital spending in auto retailers to 22.8%.
The next best performer was its Sports segment which achieved revenue of $503.8 million and EBITDA of $51.7 million. This was a lift of 2.7% and 1.6%, respectively, on the PCP.
LFL sales increased 1.1% in the segment despite the disruption caused by the rebranding 68 Amart Sports stores to the Rebel brand during the period. In addition to this, apparel and footwear categories performed well, but were dampened by a flat performance in the equipment category. And like the Auto segment, the Sports segment delivered an impressive rise in digital sales. Digital sales growth was 174%, increasing its market share of digital spending in the sports retail category to 19.4%.
Things weren't quite as positive for the Leisure segment. It posted a 3.8% decline in sales to $299.1 million and a 13.1% drop in EBITDA to $25.3 million largely as a result of a reduction in the number of Rays Outdoors stores. One bright spot, though, was that the segment's stores that remained open delivered a 1.6% lift in LFL sales. Digital sales grew 122% during the period, increasing its share of the digital leisure category to 14.4%.
Which leads us onto news that Super Retail has agreed to acquire Macpac Holdings Pty Limited for a total consideration of NZ$144 million1 (A$135 million). Management believes the deal will accelerate its strategy to build the leading adventure outdoors retail business across Australia and New Zealand. The acquisition will be funded from existing debt facilities and is expected to generate mid-single digit EPS accretion in FY 2019.
Macpac is a vertically integrated retailer with 54 stores across Australia and New Zealand offering primarily own branded apparel, equipment, and accessories. According to the release, Rays and Macpac will be consolidated under the Macpac brand.
Looking ahead, all three of its segments have started the second-half positively and have reported growth in LFL sales. No formal guidance has been provided by management, but I would suspect a second-half not too dissimilar to the first as the company focuses on developing its digital channels.
Should you invest?
Overall I felt this result was a little mixed with both positives and negatives. I'm not completely convinced with its decision to buy Macpac and would have preferred to see it exit the Leisure category, but I am willing to give management the benefit of the doubt on this one.
At the current price Super Retail's shares are changing hands at an undemanding 13x trailing earnings and provide a trailing fully franked 6.8% dividend. I think this makes it worth considering alongside fellow high-yielding retail shares such as Baby Bunting Group Ltd (ASX: BBN) and Accent Group Ltd (ASX: AX1).
