Super Retail Group’s trading update for the first 16 weeks highlights a slight softening of sales trends and some increased pressure on gross profit margins. The increased competition in the auto market is of note given Supercheap Auto accounts for over half the group’s earnings and close to two-thirds of valuation. Repco is becoming more competitive in retail and Bunnings will expand in auto in the next six months. 

Bapcor reported FY24 sales of $2.03 billion up 1% and EBITDA of $269 million down 10%. Net profit fell by 24% pre significant items on higher interest costs. The company reported a small improvement in sales early in FY25e. However, the drop in 2H24 profit margins is likely to result in only modest EBITDA growth for FY25e even though the company has cost savings to flow through. During the second-half all Bapcor’s divisions had negative same store sales performance with Trade down by 1.5%, Retail down 1.0% and New Zealand lower by 0.5%.

Super Retail Group reported FY24 EBIT of $400 million, which was down 9% year-on-year, but up 57% on FY19 levels. This represents a compound annual growth rate of 9%. Given sales trends are starting to improve EBIT should also start to rise. The question is how much. We expect LFL sales to remain between 1%-3% and EBIT margins will be largely steady. Increased competition in auto keeps us cautious about group profit margin expansion. The company’s FY24 EBIT margin of 10.3% is about 80bp higher than FY19 supported by higher gross margins.