Can Super Retail Group (ASX:SUL) reach all-time-highs again in 2024?

Ujjwal Maheshwari Ujjwal Maheshwari, June 5, 2024

Super Retail Group (ASX: SUL) reached an all time high back in February 2024 after releasing unaudited results for the first half of FY24 (1HY24) barely a month prior. The company told investors it had hit a new ‘record’ in sales, raking in about $2.02 billion. It has been all downhill since then, with a trading update in early May in the middle of so-called confession season and the Macquarie Equities Conference, being the biggest catalyst for the decline. Did investors overreact to either the good or bad news? And where is the stock headed next?

 

Super Retail Group (ASX:SUL) share price chart, log scale (Source: TradingView)

 

 

Super Retail appeared to be thriving amidst 40-year high inflation

Let’s look back at Super Retail’s 1HY24 results. The jump in sales wasn’t that big – it was $1.96 billion just 12 months prior. And even though some brands (which include Super Cheap, Rebel, Macpac, and BCF) saw sales growth of up to 4%, this included acquisitions and new store openings. When we look at like-for-like sales (not accounting for new store openings), which really show us how things are going, they only grew by 1%. This small bump suggests that people are feeling the squeeze from rising living costs and are being more careful with their spending. At the same time, they tell that new store openings are not a sunk cost.

Super Retail told investors to brace for a pre-tax profit in the range of $200 to $203 million, a step down from last year’s $218 million. The CEO, Anthony Heraghty, couldn’t shy away from the fact that their costs of doing business are climbing – we’re talking higher wages, rent, and electricity bills, all pumped up by inflation.

After the company shared its latest trading update, its shares soared to a new 52-week high. This jump in share price indicated a big thumbs up from investors, showing they believe the company has a bright future ahead.

 

Shares take a 180-degree turn

Jumping from late February to late May, Super Retail’s share price has dropped over 20%. Obviously, shares were at an all-time high, so one could argue shares wouldn’t just keep going up forever in the absence of positive catalysts. But there have been two negative catalysts.

The first came in April when a couple of employees sued the company for loss and damage of A$30-50m for allegations, including  bullying, unreasonable workloads and insufficient volumes. No one can predict the outcome of proceedings, although this is not to judge for ourselves one way or the other what we think is true and what will happen. Although the mere filing of a case is a headache for the company. Since the case was first disclosed, the lawyers representing the first 2 employees confirmed it was acting for 2 more staff and that other had come forward with similar concerns.

 

Weak trading update

Less than 2 weeks after the legal case was disclosed, at the Macquarie Conference, Super Retail gave that trading update we mentioned in the introduction. Group sales had fallen 1% so far in the second half of FY24 on a like-for-like basis. BCF led the decline with a 5% drop. Although total sales growth across the group was up 2% overall, it was flat on a like-for-like basis. Consider that the company expects over 25 stores to be open by the end of the year, and has closed just 4. It is going backwards organically, only growing through acquisitions.

‘Given current challenges around inflation and interest rates, our customers are managing their spending carefully and becoming increasingly value-focused,’ declared Heraghty.

‘While store foot traffic and transaction volumes continue to grow, ongoing cost of living pressure is impacting [the] number of items per sale’.

 

Things could be about to turn for Super Retail

This was three weeks ago. So why are we writing about Super Retail right now, long after the above events? Because we saw a sign that things might be about to turn in the other direction. In the past week, six of its directors have bought shares, over $470,000 all up. Directors buy and sell shares all the time, and there is no guarantee that things will improve. That being said, it is a sign that these directors are confident. And furthermore, it is not common to see so many from the same company and at such an important time.

The pivotal moment for investors to look out for is the company’s FY24 results, due in August. At this point, it is plausible we could see guidance for FY25 and/or a trading update covering the three months from early May to whenever in August the results are due.

 

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