Super Retail Group: Sales Holding Up Better Than Expected, but Shares Overvalued

We raise our fair value estimate for no-moat Super Retail Group SUL by 5% to AUD 10.50 per share, with shares screening as overvalued. The increase in our intrinsic assessment is principally due to better-than-expected performance of discretionary leisure goods retailing, including sporting and camping goods.

Sales in the first 16 weeks of fiscal 2024 were up 4% on the previous corresponding period, or pcp, underpinned by like-for-like sales growth of 2%. With turnover tracking ahead of our expectations, we upgrade our fiscal 2024 group sales forecast to a more modest 1% contraction from a 4% fall previously, lifting our fiscal 2024 EPS forecast to AUD 1.01 from AUD 0.97.

However, we still anticipate consumer demand for discretionary goods will revert to category trend levels and leave our long-term sales and earnings forecasts intact. For more detail on our outlook on discretionary spending, please refer to our Retailing Industry Pulse, “Shoppers Prioritizing Food and Drink Over Nice-to-Haves,” published Sept. 29, 2023.

We upgrade our fiscal 2024 sales forecast for the Supercheap Auto division to a 2% fall, from a 5% fall. The segment, which accounts for 38% of Super Retail’s revenue, saw total and like-for-like sales lift 4% on the pcp in the first 16 weeks of fiscal 2024, a continuation of the momentum seen in the first six weeks. Performance was led by ongoing strength in the auto maintenance category. Already Australia’s largest auto parts retailer, Supercheap Auto likely took more share in the opening weeks of fiscal 2024, with competitor Bapcor, owner of Autobarn, reporting a “further deterioration” in its auto parts retailing segment.