Written on the 26 February 2016


SUPER Retail Group (ASX: SUL) shares have dipped 17 per cent as a lift in group sales failed to translate into growth for underlying earnings.

The retailer's shares hit a low of $8.05 this morning after the company, which owns Rebel Sport, BCF and Supercheap Auto, delivered a net profit of $44.9 million, up from $33.6 million the previous corresponding period.

However, the previous year's result was impacted by a one-off $21.2 million loss from discontinued operations, bringing into focus an otherwise lower result for the latest half-year.

Super Retail's underlying earnings growth remained flat with EBITDA (earnings before interest, tax, depreciation and amortisation) falling 0.7 per cent to $124.9 million.

The latest profit result came off the back of a solid December-half sales performance, with Super Retail Group reporting a 6 per cent lift in revenue to $1.216 billion.

Sales were up across all divisions, although the leisure segment, which includes BCF, suffered a sharp drop in EBITDA from $22.3 million to $13.4 million.

The company says it has a strong working capital position with operating cashflow of $177 million, up 26 per cent from a year earlier.

Managing director and CEO Peter Birtles says the respective segment EBIT (earnings before interest and tax) growth of 10.2 per cent and 9.5 per cent for auto and sports is a positive reflection of the company's strategic investments over the past 12 months.

"The strong performance of the auto and sports divisions is reflective of the work we are doing to inspire and engage our customers, through investing in store refurbishment, extending our service offering, developing our online channels and focusing more on tailored marketing," he says.

"We are seeing improvements in shelf availability and lower stock levels resulting from our investment in supply chain capability."

Super Retail's leisure division, which includes BCF and Rays, suffered a 40 per cent slide in total EBIT due to competitive pricing, stock clearance and higher sourcing costs.

While the leisure segment still continues to build sales momentum, Birtles admits the underperformance of Rays stores has resulted in a $20 million non-cash impairment of the brand name.

"The leisure division is undertaking a significant transformation and we have been encouraged by the improved sales performance of the BCF business and the early performance of the converted Rays stores," he says.

"We are now focused on sustaining the sales momentum of the BCF business while also improving gross margin through optimising product range and pricing, we are also extending the trial of the new format Rays stores."

The company has set aside $53 million for company growth in the year ahead, with plans to open and refurbish a number of stores across all divisions.

The interim dividend has been lifted 8.1 per cent to 20c per share.






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