Under the Spotlight AUS: Super Retail (SUL)

Super Retail’s ($SUL) fantastic four – Supercheap Auto, Rebel, BCF and Macpac – have proved themselves a force to be reckoned with in the retail universe. These iconic brands keep customers coming through the doors despite cost-of-living pressures and high interest rates.

From its 1972 founding as a mail order business for rev-heads, Super Retail’s acquisition-driven expansion into fitness apparel, camping equipment and outdoor gear has driven a near six-fold return since its 2004 IPO. Revenue has increased in each of the past ten years. FY24 numbers were also good, but the 45% rally in shares to record highs over the past three months speaks more to Super Retail’s future than its past.

Future focused

As new stores have increased from 635 to 759 over the past decade, sales have risen from $2.2b in FY15 to $3.88b in FY24. Considering pressures on consumer’s hip pockets, CEO Anthony Heraghty is right to describe the 2% YoY sales growth as ‘solid’ – even if net profit fell 9% to $240m. Supercheap Auto sales rose 3% to $1.50b while Rebel’s fell 1% to $1.29b.

But it was what the company had to say about FY25 that rekindled investor interest. Total sales increased 5% in the first seven weeks of FY25 compared to the same time last year. Macpac enjoyed total sales growth of 15% as demand for rainwear remained strong due to cold and wet weather. Meanwhile, Supercheap sales were up 6%.

The positive trading update and the share price surge that followed will be a welcome distraction for the CEO from the dirty laundry being aired in the Federal Court.

Loyalty pays

Top brands and a growing number of stores tell only part of the Super Retail story. An important third leg of its strategy is the laser focus on customer loyalty.

Active club members have grown from 6.6m in FY20 to 11.5m in FY24. Coupled with an increase in customer satisfaction – highlighted by improved net promoter scores – this makes loyal members an important driver of growth. 

Club member share of group sales increased from 59% in FY20 to 77% in FY24, with a huge 90% of BCF’s sales sourced from club members. Supercheap Auto and Rebel, the two biggest businesses, generate 69% and 77% of sales from club members. 

Rebel’s new Active loyalty program will be a focus for investors. The sportswear retailer has 3.9m active club members, with 3.3m having earned loyalty points valued at a total of $42m. That may appear hefty, but Super Retail says they’re on track to deliver $12 of sales for every dollar of loyalty points redeemed. 

Cash rich

Investors were rewarded with a 50c special dividend on top of a 37c final dividend, underscoring management’s confidence about the outlook despite tight household budgets. Both dividends will be paid on 17 October 2024. 

Super Retail has an enviable $218m in net cash. There is no drawn debt. This begs the question: what will Super Retail do with its balance sheet capacity? Management is not debt shy – they have a long-term net debt/EBITDA target of 0x to 0.5x. Clearly the company has firepower to not only fund its own growth plans but also look at acquisitions at the right price. It has access to $500m of debt facilities.

Premium brand

Super Retail isn’t a bargain bin stock, especially after the recent rally. It trades at around 16x forecast FY25 earnings, which is above its long-term average of 13x. A consolidation of the share price shouldn’t surprise. Super Retail needs to prove it can rely on its brands’ superpower: strength through diversity. 

This does not constitute financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.