SUPER RETAIL HALVES H1 PROFIT

THE retailer behind Super Cheap Auto, Rebel Sports and Ray's Outdoors, has reported a 45.5 per cent fall in its net profit in the 26 weeks to 27 December 2014.

Super Retail Group (ASX:SUL) nearly halved its first half profit to $33.6 million, from $61.6 million, after carrying out a major restructure of the business.

The company declared an interim fully-franked dividend of 18.5 cents a share while net profit was $58.1 million and revenue dropped 5.7 per cent to $1.16 billion.

SUL managing director and CEO Peter Birtles (pictured) says the overall results were reflective of a solid contribution from the auto and sports division, offset by a lower contribution from the leisure division.

"The auto division delivered a solid result having trialled a number of new marketing and promotional activities during the half year which have a mixed effect on both top line and gross margin and we will be applying the learnings from these trials in the second half," he says.

"As expected, the leisure division continued to see like for like sales fall below last year as a result of cannibalisation and the mining sector slowdown but as forecast, this impact began to diminish as the half progressed.

"The recovery in sales momentum in the sports division was particularly pleasing, highlighting that the system issues encountered in the prior financial year have been largely addressed."

Birtles says after rebuilding momentum, the sports division will broaden its focus on lifting gross margin and reducing inventory in the second half of the year.

The new Sydney distribution centre was fully operational in April 2014 while the Brisbane distribution centre opened this month.

SUL plans to shut down its New Zealand-based Fishing Camping Outdoors (FCO) after concluding it was unlikely the division would achieve the group's return on capital hurdles within a reasonable time.

"Our initial approach of developing a business specifically for the New Zealand market has proven to be flawed and FCO has always battled to get the attention it required while we have been addressing challenges in our BCF and Ray's Outdoors business," says Birtles.

Moving forward, Birtles says the second half of the year will involve focussing on lifting gross margin.

"Like for like sales growth has been circa 3.5 per cent in the auto division, circa 6.5 per cent in the leisure division and circa 9 per cent in the sports division for the first seven weeks of the second half," he says.

"We will be focussing on lifting gross margin but we need to be careful to manage the trade off with sales momentum in an environment in which customer confidence is still patchy.

"Compared to our plans at the start of the year, we expect to incur up to $6 million in additional group projects costs as we implement recommendations from the change management review, we invest in the fixed price car service business and we incur some further costs on the development of Ray's Outdoors business.

"We plan to continue to grow and strengthen our store network, opening five auto stores, opening and closing five leisure stores (outside of the FCO business) and opening six and closing two sports during the second half."