I think the Super Retail Group Ltd (ASX: XRO) share price is worth watching in August. I am, of course, looking ahead at the Aussie retailer's August earnings season.
It's been a big – and challenging – start to the year for ASX retail shares, but here's why I think August could be a game-changer for Super Retail.
Why I'm watching the Super Retail share price
The Aussie retail group is set to release its full year results on 24 August. That means I've got about 6 weeks to think about whether or not the Super Retail share price is a buy.
The ASX retail share was hammered in the March bear market and fell to a 52-week low of $2.99 per share. However, it's since roared back to life and is up 126% since bottoming out on 19 March.
For context, at the time of writing the S&P/ASX 200 Index (ASX: XJO) is down 11% this year, while the Super Retail share price has fallen 21%. The tough thing for investors to decide is whether that makes it a cheap buy or a falling knife in 2020.
How does Super Retail make money?
Super Retail is a leading Aussie retailer founded in 1972. The company currently boasts iconic brands like Supercheap Auto, Macpac, BCF and Rebel Sport in its portfolio.
With coronavirus restrictions kicking in this year, retail sales are under pressure right now. However, given the group's diversity across the retail sector, Super Retail has still enjoyed sales amid the economic uncertainty, largely driven by spending on personal fitness equipment (Rebel) and self-sufficiency products (Supercheap Auto).
The ASX retail group provided a trading update on 15 June that contained some good news for investors. Group like-for-like (LFL) sales plummeted 26.2% in April, before bouncing back in May. It reported that its May 2020 LFL sales were up 26.5% compared to May 2019 – solid growth that has fuelled the Super Retail share price recovery.
Where will the Super Retail share price go in August?
I think it's an interesting crossroads for the Aussie retailer right now. The company is looking to adapt to COVID-19 conditions by driving more sales and building its online profile.
Last week, the group announced the successful completion of its $44 million retail entitlement offer. That further strengthens Super Retail's balance sheet after its $158 million institutional entitlement offer completed in June.
In February, Super Retail posted a strong first-half FY20 result. Of course, times have changed since then, particularly for the retail sector. However, I think a shift towards online sales and the JobKeeper stimulus could provide some short-term benefits. Aussie retailers could actually improve liquidity and slash staffing costs to offset some of the lost sales in the last 6 months.
Foolish takeaway
I think the Super Retail share price is in an interesting place. The group's sales have been volatile from month to month, which makes it difficult to pin down a value, however, the company's shares currently trade at price to earnings (P/E) ratio of 12.9, which could be good value.
I think a strong sales result in August, combined with progress toward the retailer's online strategy goals, could tip the Super Retail share price into the buy zone.
