Even though shares in Super Retail Group (SUL) leapt yesterday after the company reported solid quarterly sales results at the annual meeting in Brisbane, there were a couple of lingering problems that enthusiastic investors seemingly overlooked.
In a trading update issued to the meeting, CEO Peter Birtles said group like for like sales were up in the 16 weeks to October 18.
The shares jumped 47c at one stage to a day’s high of $8.14, before retreating a touch to close up 3.4% at $7.92.
Perhaps the cooler headed investor took a closer look at the trading update, which revealed that the weakness seen in the 2014 year in the leisure business continues to trouble the company.
The company said that like for like sales in the Super Cheap auto division were up 4%, in sports retailing (Amart and Rebel) they were up 3%, but in the leisure group (including Ray’s Outdoor’s and BCF) like for like sales fell a nasty 8%.
And Mr Birtles told shareholders that gross margins were behind what they were during the same time last financial year.
“We are expecting a recovery is gross margins in the second half and to be in line with the prior period over the full year,” he said. The fall in margins was a feature of the closing months of 2013-14 as weak demand saw the company step up marketing spending at the cost of maintaining profit margins.
That is concentrated in the leisure business where a slow improvement in the second half is expected.
Naturally, Mr Birtles told the meeting that, “We are pleased with the sales growth being delivered in both the auto and sports divisions.
“As forecast, the leisure division continues to be impacted by new store cannibalisation and weak trading conditions in mining and regional areas – this impact is expected to reduce in the second half of the financial year."
He said sales at its leisure businesses, Ray’s Outdoors and FCO Fishing Camping Outdoors, were below expectations.
SUL YTD – Leisure slump weighs on Super Cheap
Despite this weakness in margins, the company says it plans to expand store numbers this financial year and will spend $90 million on new stores and refurbishments.
It expects to open about 10 new stores for its auto division and refurbish another 45 outlets.
Another four stores are planned for the leisure division, while two will close and three BCF superstores will be refurbished.
Fourteen stores will be added to the sports division, with the focus on expanding its Amart chain.
A total of five sports stores will close and 15 will be refurbished.
