Super Retail Group’s trading update provides divergent implications with sales improving slightly, but gross margins deteriorating a little in Feb-April 2024. Rebel has accelerated a little, while BCF slowed. The commentary on gross margins is a little softer. The company outlined the implications of its recent wage agreement, which will entrench higher cost growth for FY25e.

Super Retail Group reported EBIT down 3% in 1H24 with cost growth ahead of sales growth. Super Retail Group’s trading update was soft, but its sales trends are unlikely to deteriorate from here. The challenge is operating cost growth of 6.5% is the base case for 2H24e with sales growth of only 1.2%. Wage and rent cost growth will remain elevated.

Super Retail Group provided a trading update highlighting that sales held up relatively well in 1H24 and gross margins were up slightly. Like many retailers, gross margins are proving to be a cushion to the weakness in sales and elevated cost growth. We lift our EPS forecasts by 7% in FY24e and 3% in FY25e. While a positive update, we expect sales trends to be soft from here and cost growth will outstrip sales growth for two consecutive years.