For investors, owner of Supercheap Auto is much, much more

From humble beginnings as a car parts by mail order business to a retail conglomerate selling everything from basketballs to puffer jackets, the business behind popular automotive retailer Supercheap Auto has lived up to its slogan of being everything auto – and much, much more.

With nearly 700 stores across the country and a stable of well-known retail brands, it’s little wonder Super Retail Group has been a popular stock for investors, who have driven up its share price more than 400 per cent since it first listed on the Australian Securities Exchange.

Super Retail Group CEO Anthony Heraghty.Credit:Kathleen Adele

Today, the business has capitalised on a strong COVID-fuelled sales boost and built its online offering, while also reversing the fortunes of its struggling outdoors retailer Macpac.

However, with consumer confidence waning and the cost of living increasing, there are some concerns the business may not be able to maintain its strong sales growth.

How it started: The business began in Brisbane in 1972 as a mail-order service for car parts started by husband-and-wife duo Reg and Hazel Rowe, which soon grew into having bricks-and-mortar stores. In 1981, the Rowes changed the company name to Super Cheap Auto.

By 1991, Super Cheap had eight retail stores across Queensland with nearly $20 million in annual sales. By 2002, it had 100 stores, and in 2004 the business listed on the ASX at $1.97 a share, netting an $81 million windfall for the founders.

A year later, the business acquired CampMart’s four camping and outdoor leisure stores, which would become the foundation for BCF. In 2010, it acquired Rays Outdoors and renamed the broader business to Super Retail Group. Rebel Sports joined the stable a year after, and Macpac was purchased in 2018.

How it’s going: Today, the company’s four brands – Supercheap Auto, Rebel, BCF and Macpac – have about 700 locations across Australia and New Zealand, with a collective annual revenue of $3.5 billion. It is one of the larger retailers on the ASX, with a market capitalisation of $2.3 billion. Its shares are changing hands for about $10.30.

Like many businesses, the company has grown swiftly through COVID thanks to an online shopping boom, aided by a $200 million capital raise early in the pandemic to help bolster its online and omnichannel offering.

Industry: Automotive, sports and outdoors retailing.

At the company’s full-year results last week, Super Retail revealed a 2.8 per cent increase in annual sales but a 20 per cent drop in net profit and a fall in margins.

Main products: Car parts, sporting goods, camping equipment, puffer jackets.

Key figures: Chief executive Anthony Heraghty, chair Sally Pitkin, non-executive director and co-founder Reg Rowe.

The bull case: At the company’s full-year results last week, Super Retail revealed a 2.8 per cent increase in annual sales but a 20 per cent drop in net profit and a fall in margins. While these seem like significant falls, they are compared to record highs of COVID-fuelled 2021, with analysts saying the business is still in good shape.

Craig Woolford, MST Marquee senior analyst, told clients in a research note Super Retail reported a “strong result with good momentum”, highlighting the company’s preliminary trading figures for the start of the new financial year, which showed 17 per cent sales growth across the group, led by outdoors brand Macpac, which reported 42 per cent growth through July.

Macpac’s performance has been of particular focus for investors, as the business has spent many years in the doldrums. Its sales over fiscal 2022 grew 15 per cent, aided by a strong bout of cold and wet weather.

Online trade continues to be a standout, thanks to its investment throughout the pandemic. Over the past 12 months, the company reported a 44 per cent uptick in online sales to $601 million, comprising nearly 20 per cent of overall sales.

The bear case: While analysts were praising the company’s sales growth, simultaneously they were wringing their hands over a potential issue which has hurt many of Super Retail’s peers: too much stock.

The business has about $800 million in stock, up 15 per cent on last year. Some analysts flagged a risk that a slowdown in consumer spending could see the company with excess inventory it is unable to move, leading to heavy discounts and weaker profit margins.

Heraghty defended the choice, saying it is “safety stock” to hedge against any further delays in shipping, and Citi analyst Adrian Lemme said a $100 million decline in inventory, compared to the first half of the financial year, “takes away at least part of the bear case downside”.

However, Super Retail could still be exposed to a deterioration in consumer spending, as businesses such as Macpac, Rebel and BCF are largely discretionary and could be cut out as household budgets tighten.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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