Super Retail Group Limited (SUL) Earnings Call Transcript & Summary

Welcome to the FY '26 Full-Year Results Presentation for Super Retail Group. Today's presentation will be made by the Group's Chief Executive Officer and Managing Director, Mr. Paul Bradshaw; and its Chief Financial Officer, Mr. Dave Burns. There will be an opportunity to ask questions at the end of the presentation. This call is for investors only. Media wishing to obtain access to management should contact Kate Carini, GM, Corporate Affairs, whose contact details appear on today's ASX announcement. I would now like to hand over to Mr. Paul Bradshaw to begin today's presentation. Please go ahead.

Thank you, operator. Good morning, and welcome, everybody, to Super Retail Group's FY '26 Full-Year Results Presentation. I will begin by speaking to some of our financial and operating highlights for the period before discussing the performance of each of our brands. Our Chief Financial Officer, David Burns, will provide you with some more detail on the financial results. I will then provide a trading update for the first 7 weeks of FY '27. There will be an opportunity, as the operator stated, for you to ask questions at the end of the call. Firstly, I would like to acknowledge the traditional owners of the country on which we are each present and recognize their continuing connection to lands, waters and communities. We pay our respects to the elders past and present. Moving to Slide 4, the full-year highlights. Our more than 15,500 team members at the heart of our success, and their safety remains our top priority. We are pleased to deliver another year of improvement in workplace safety, with TRIFR reducing from 12.1 in FY '25 to 10.9 in FY '26. We have embedded a new leadership team that combines extensive Super Retail Group experience with high-caliber external talent. The blend of deep business knowledge and fresh industry perspectives is enhancing decision-making, driving performance and positioning the group for sustainable growth. In June, we shared our new 5-year strategy to capture a greater share of the $65 billion total addressable market and deliver our growth ambitions through to 2031. Our customers are absolutely at the center of all we do. And in FY '26, we continue to grow our active club member base, our Net Promoter Scores and total percentage of sales from our active club members. We are pleased to be able to once again deliver positive like-for-like growth over the full year. After a positive first half, the group experienced significant disruption over the keys to trading period, with the onset of the fuel crisis. Like other retailers, we also faced several other challenges to trading, including a series of interest rate rises and a warmer-than-expected winter, particularly in New South Wales and Victoria. I'm pleased to report that while our team navigated these tough trading conditions, we also made strong progress throughout the year on several key strategic investment initiatives. We successfully transitioned our Southern supply chain operations to our new Truganina distribution center in Victoria and remain on track to unlock that national distribution center functionality in the near term. We implemented a new HR and payroll platform, which is now fully operational across the group. Turning to Slide 5, the financial and operating highlights. The group delivered $4.2 billion of sales in FY '26. Total sales grew by 3.2%, driven by 1.8% like-for-like growth and supported by continued network expansion. Gross margin increased by 10 basis points to 45.7%. Normalized profit before tax declined by 7% to $306 million, representing a profit before tax margin of 7.3%, down 80 basis points from the prior year. Normalized NPAT was $226 million and normalized earnings per share was at $1 per share. The Board has determined to pay a fully franked final dividend of $0.33 per share. Together with the interim dividend of $0.32 per share, this represents aggregate annual ordinary dividends to shareholders of $0.65 per share at the top end of our payout range. The group is entering FY '27 in a strong financial position with just $14 million of debt at the end of the period. Now turning to Slide 6, like-for-like growth. The group has delivered record full-year sales. Sales growth of 3.2% was driven by 1.8% like-for-like growth and 1.4% from new store openings. Full-year like-for-like sales was mixed within the portfolio, with a solid result from rebel, a resilient performance from Supercheap Auto, offset by softer trading conditions for BCF. Macpac generated strong sales momentum over the first 9 months before demand moderated in that fourth quarter. Group like-for-like sales momentum was negatively impacted in the second half by the onset of the fuel crisis of the key Easter trading period. Now turning to Slide 7. Profit before tax declined by 7% in FY '26. And while this is not the result we are aiming for, it does reflect the deliberate decisions that we have made to invest in the long-term future of our business. On the left-hand side, you can see the breakdown of the 80 basis points decline in profit before tax margin. From an operating perspective, a 10 basis points increase in gross margin was offset by a 30 basis points increase in operating costs. Operating costs were well managed in the period, increasing by 4%, which includes the network expansion and underlying inflation across key cost categories such as rent and wages. The increase in project investments associated with the new distribution center and that payroll system contributed a further 50 basis points to the overall margin decline. In the waterfall chart on the right-hand side, we have presented the margin drivers in terms of operational outcomes, financing and project outcomes associated with near-term strategic initiatives. Operational outcomes delivered a net $2.4 million or 0.7% of profit before tax growth in the period. Profit before tax growth for Supercheap, rebel and Macpac was partially offset by a decline in BCF and slightly higher corporate costs in the period. Financing costs drove a further $6.6 million profit before tax decline as the group held lower average cash levels throughout the year, following payment of the special dividend in the first half. An increase in project investments contributed $19 million to the profit before tax decline, reflecting costs associated with the transition to the new DC and our payroll system. Now turning to Slide 8, the customer highlights. We now have 13.1 million club members. They're active club members that have shopped with us at least once in the last 12 months, representing over 85% of our sales. Club member spend as a percentage of sales has continued to increase, with BCF once again a standout at 92% of sales. Our group club member NPS score has improved from 71 to 74. On Slide 9, this shows the strong momentum for the group across our club member metrics over the past 6 years. Now turning to Slide 10, store network highlights. We continue to deliver a strong pipeline of store openings with a net 15 new stores in FY '26, with 28 openings and 13 closures. We plan to open a net 18 new stores in FY '27. In addition, we converted a further 2 BCF stores to superstore format and continue to refurbish the Supercheap and rebel fleet. Slide 11, our digital and omni highlights. Full-year online sales grew by 5.3% to $552 million and represents 13% of total sales. Importantly, Click & Collect, which is our most profitable channel, grew by 10.3% and accounted for almost half of online sales, meaning that 93% of all sales are completed in-store. Slides 13 and 14 are pretty self-explanatory. So, I will move to the brand side, starting with Supercheap Auto on Slide 15. Supercheap Auto performed strongly across the first 3 quarters of FY '26. The momentum moderated in the fourth quarter as fuel supply disruptions affected customer traffic and spending. Despite an elevated competitive environment, Supercheap Auto delivered market share gains over both the full year and the second half, with customers responding very well to the ranging initiatives that the team have put in place. Club member Net Promoter Score increased by 6 points to 75, which is an outstanding result and reflects the team's concerted focus on both ranging and service. Over 1 million fitments were completed across the network in FY '26, an increase of more than 12%, solidifying a real key point of differentiation with both core auto peers and generalists operating in this space. Slide 16 sets out the financial performance. Total sales grew by 3.9% to $1.6 billion. Like-for-like sales growth of 2.8% in Australia exceeded a 1.4% improvement in New Zealand. Gross margin declined by 30 basis points due to largely to negative product mix. The team maintained promotional discipline in a competitive environment. Cost of doing business declined by 20 basis points. Full-year profit before tax margin declined by 10 basis points to 12.8%. Profit before tax increased by 3.3% to $203 million in the full year. Turning to Slide 17, rebel highlights. rebel produced a solid revenue outcome, with 3.8% like-for-like growth generated amid a softer sporting category performance and elevated competition. rebel maintained its positive market share momentum, with solid share gains over 6 months, a year and the 2-year frame. rebel has enjoyed continued positive market share momentum since October of 2024, coinciding with the introduction of the rebel loyalty program. At the half year, I spoke about the opportunity for a sharper focus on retail execution, and I've been pleased with the team's progress in the second half. Finally, rebel enjoyed a successful FIFA World Cup campaign, with strong customer engagement supporting the second half performance. A summary of the rebel's financial performance is set out on Slide 18. Total sales grew by 4.5% to $1.4 billion. Like-for-like sales grew by 3.8%, with growth in both the number of transactions and the average transaction value. The gross margin improved by 60 basis points in the full year, reflecting improved promotional discipline and favorable product mix in the second half. Full-year profit before tax grew by 4.3% to $105 million, with the profit before tax margin in line with the prior year. Turning to BCF on Slide 19. BCF faced a challenging FY '26, following an exceptional FY '25 where favorable conditions aligned to deliver a strong result. In contrast, we experienced headwinds during peak trading periods in FY '26 that materially impacted performance. At the half year, I flagged the impact of the unfavorable weather conditions on trading, which is an inherent part of operating a business such as BCF. However, the fuel prices was more significant, hitting during BCF's critical Easter trading period. The combination of higher fuel prices and concerns around fuel availability materially reduced participation in outdoor leisure activities. I'm very proud of the response from the BCF team who showed good discipline on pricing, protecting gross margins and manage costs appropriately. The team continued to deliver on their network plan, with successful launches of large-format and superstores during the year. We also opened our first fitment store powered by Ironman over in Cannington across in Perth. And I saw the facilities myself last week firsthand with a good customer response already, and we have our next locations lined up. A summary of the financial performance of BCF is set out on Slide 20. Total sales grew by 0.2% to $953 million. Like-for-like sales fell by 2.1%, driven by a decline in transaction volumes. Gross margin increased by 20 basis points. Segment profit before tax margin declined by 90 basis points to 5.5% as a result of the operating deleverage. Segment PBT increased by 14.3% to $52 million. Now turning to Macpac on Slide 24 (sic) [ Slide 21 ]. Macpac generated strong sales growth across both New Zealand and Australia through the first 9 months of FY '26. Trading momentum softened over Easter as the fuel crisis weighed on outdoor recreation before unusually mild weather, particularly in New South Wales and Victoria throughout the winter, negatively impacted demand during the critical winter trading season. Following some clearance activity early in quarter 1, the team has been disciplined on gross margin and pricing and has managed costs very well, delivering strong operating leverage and profit growth over the full year. A summary of the financial performance of Macpac is set out on Slide 25 (sic) [ Slide 22 ]. Total sales grew by 3.5% to $240 million. Like-for-like sales grew by 1.5%, with 3.7% growth in New Zealand and 0.3% in Australia. Subdued demand in New South Wales and Victoria was offset by robust growth in other states. Gross margin declined by 30 basis points. Profit before tax increased by 120 basis points to 5.7%, and segment profit before tax increased by 32% to $13.6 million. I'd now like to hand over to David Burns to talk more detail to our financials.

Thank you, Paul. Just turning to group and unallocated. It includes corporate costs not allocated to segments, investments in group projects and financing costs. The group unallocated costs increased by $28.5 million in the period, reflecting, firstly, an increase in project investments of $19 million associated with the transition to the new distribution center in Truganina and the implementation of our new HR Core and Payroll system, which was completed in the period. Secondly, we had net interest expense $6.6 million higher, reflecting a lower average cash position following the payment of the FY '25 special dividend in the first half. Moving to the balance sheet on Slide 24. The group has maintained its strong balance sheet position with the net debt of $14 million at year-end, comfortably within our target gearing range. Total inventory increased by $73 million or circa 8%, reflecting a 2% increase in the store network from new stores and a 6% increase in net inventory per store. Inventory per store was higher due to, in part, the cost of goods inflation as well as a tactical investment in working capital, which we signaled in the May trading update. Supercheap Auto increased its inventory holding towards the end of the period to protect against the potential disruptions to supply that was caused by the fuel crisis, and this has contributed to positive momentum in early FY '27. In response to the challenges in the first half, rebel sought to improve stock availability levels, with inventory per store increasing 11% on a year-on-year basis at June. Inventory quality remains high, with average inventory levels within our average aged inventory levels within our targeted range. Moving to the cash flow. Operating cash flow of $593 million was $16 million higher than the prior period, reflecting the increased investment in working capital that I mentioned just a moment ago and more than -- which was more than offset by lower cash tax payments. Operating cash conversion of 92% remains strong. The total capital expenditure in the period of $123 million was $42 million below FY '25. Store network investment was lower due to the more moderated activity at Supercheap Auto ahead of a new Gen 5 format that is in trial and will be launched next weekend. A large format program is also being prepared by the Supercheap Auto team, while Macpac continues to pursue a more measured expansion plan following a significant increase in stores in FY '25. Other capital expenditure declined by approximately $18 million due to the completion of several supply chain projects that were prominent in the prior year. Moving to returns and capital ratios. The group delivered normalized EPS of $1 in FY '26, down 2.8% from the prior year. Post-tax return on capital was 16.7% in FY '26, driven by elevated near-term project expenditure, together with recent large-scale infrastructure investments. Return on capital remains comfortably above the group's cost of capital. The Board has determined to pay a fully franked dividend of $0.33 per share, taking the full-year ordinary dividend to $0.65 and representing a payout ratio at the top end of the group's 55% to 65% payout ratio. I'll now hand back to Paul.

Thank you, David. Moving to Slide 28, the corporate strategy. At our Investor Day in June, we were excited to share with you our new 5-year strategy, which outlined the opportunity that we see for growth and how we plan to go about it. We have a $65 billion total addressable market across auto, sport and outdoor, of which we currently generate $4.2 billion worth of sales. Slide 29 outlines how we will deliver on the opportunity that is in front of us with 3 clear and focused growth engines for each of our brands. These are supported by group transformation agenda, Project Ignite, which is driving targeted investment to strengthen execution and enable sustainable growth. Our team is highly focused on executing these growth engines, and we look forward to sharing our progress with you. Slide 30, our capital expenditure envelope. This highlights the evolution of various projects within our capital expenditure envelope over the past 4 years. Investments in new stores and refurbishments will continue to underpin the CapEx envelope in the short to medium term. FY '25 represented the peak period of investment in supply chain. With the new DC in Victoria now operational, spend is expected to moderate beyond FY '26. Investments in our systems and technology associated with our Project Ignite transformation program is anticipated to grow within the capital envelope in the coming years. Turning to our responsible business initiatives on Slide 32. As we've refreshed our corporate strategy, we have also reviewed and strengthened our 2030 sustainability framework. This refresh builds on the strong foundations already in place while sharpening our focus, strengthening accountability and enhancing our ability to deliver meaningful outcomes. I'm pleased with some of the real progress we're making in terms of continued recognition for WGEA as an employer of choice for gender equality, achieving Green Star certification for our Truganina DC facilities and remaining on track to meet our target for diverting waste from landfill. So, turning to Slide 33. You can see the meaningful progress in FY '26 towards key focus areas of our sustainability framework. Slide 40 (sic) [ Slide 35 ], trading update. We're pleased to report a positive start to FY '27 with like-for-like sales growth of 1.5%, a total sales growth of 3.5% for the first 7 weeks. Supercheap Auto has experienced a positive start to the year, driven by a strong Best Performing Oils campaign. rebel generated 1.1% like-for-like sales growth, with demand normalized post the FIFA World Cup. Positive contributions from footwear, licensed and equipment were partially offset by softer apparel. Underlying momentum at BCF is sound in a seasonally low period of the year. Like-for-like growth rates have been impacted by the opening of certain large format and superstores, which are included from the like-for-like calculation, are instead shown in our total growth. Macpac continues to be impacted by subdued demand given ongoing mild winter conditions over the peak trading period. Positive growth in New Zealand is being more than offset by weakness in Australia. I'm very conscious that 7 weeks is a short period to provide commentary on. More broadly, I would note again that the group experienced a negative impact from the fuel crisis in quarter 4 of FY '26. And while there have been signs of stabilization in the short period since tensions in the Middle East remain elevated, creating uncertainty around the outlook for FY '27. Such as it is in retail, domestic factors such as interest rates, elevated inflation and pressure on housing markets are also weighing on consumer confidence in the near term. I want to reiterate, this represents 7 weeks of a 53-week year. Now just before I hand over to questions to the operator, I do want to recognize David's contribution. I think this is your 27th earnings call over the 14 years. Thanks for your commitment to Super Retail Group team and to our customers. The support to me personally over the last 7 years and particularly in the 9 months that I've been in the role, I thank you, and I wish you and Angie all the best in your retirement, David. Thank you.

Thank you, Paul.

I'll hand back now to the operator for questions. Thank you.

[Operator Instructions] The first question comes from the line of Michael Simotas with Jefferies.

And I'd just like to echo those comments about David. I've always enjoyed our interactions and all the best. First question from me is on rebel and in particular, the benefit that you got from the FIFA World Cup during the period. You're going to have to cycle that next year. So, just want to try and get a sense of how big the benefit was. If we look at the change in sales run rate, it looks to me like it could have been an incremental $15 million or $20 million of sales at what should be a fairly high contribution margin. Any sort of help you can give us on that?

Yes. Thanks for the question, Michael, and your kind words to David. But I would say, yes, we absolutely had a benefit from the World Cup. What I would say is we increased the volumes from, what, 4 years ago by a 70% increase, and that was received really well by our customers. And we actually sold out early. So, I'm sure we'll be placing an increase on those volumes for 4 years' time. As I said in the presentation, it's stabilized. But yes, we will cycle it as we have to cycle many, many sporting activities. The great thing was how our customers really did engage with sport. And I think that gives us confidence in our strategy in truly owning sport in rebel.

Okay. And is that $15 million to $20 million sales boost in the ballpark?

What I would say to that is we sold out and we'll be increasing our volumes moving forward. But I'm not going to give guidance. I think our focus is on every single day, truly owning sport across Australia, and that's what Jenny and the team are focused on.

Yes. I think, Michael, you've also got to recognize we had the Lions touring in the prior year. Next year, we'll have the Women's World Cup as well. So yes, I would say that it was a very well-executed World Cup with a lot of teams involved, and we got behind it and the customer got behind it. But yes, rebel does have a lot of different events in its calendars.

Yes. Okay. No, that's good. And then the second question for me is on the lubricants category in auto. Just a couple of parts to this. Just interested in how consumers are shopping the category with the material inflation that you've had? Are they staying loyal to their chosen product? Or are they trading down? And also the Best Performing Oils campaign, I think, ran 3 or 4 weeks earlier this year relative to last year. Is that a wash when we look at the trading update? So, was it wholly in the period for both years?

Yes. You're absolutely right, Michael. We landed it early, and it resonated really well with our customers. The pressure on inflation in that category, as you'll be aware of. But yes, it certainly resonated early. So yes, and we'll continue to....

But if we look at it year-on-year over that 7 weeks, it's a wash?

It's an absolute wash, yes.

Okay. And then just the trade down versus loyalty to a particular product?

No, not really. We're not focused on what others are doing in that space, and you'll have seen activity even last week. We're focused on giving our customers exactly what they need. So yes, that's all about the product on the shelf and great value.

Next question comes from the line of Adrian Lemme with Citi.

Congrats again, David. I just wanted to add to Michael's questions on rebel that the GP margin improvement looks like about 170 bps in the second half, so quite a turnaround. I'm just trying to understand how much of that is a one-off benefit from the World Cup and how much is actually sustainable? I'd also note, obviously, you talked about mild winter weather. I imagine that would have impacted apparel sales at a higher margin.

Yes, you've definitely got -- we sold at full price for starters, all that licensed product, which was a benefit to us. I'd also take you back to the half year results when we talked, Adrian, about availability. And if you've got the product, that's going to flow through in your margin also. So, we haven't fixed that. We've improved. We're in a better place than we were, but we've got a lot of work to do in that space. I saw it firsthand even last week over in WA, and we've got opportunity and it's part of our strategy actually in the flow of product to our stores.

Could I ask a question on currency? I know it's always a question of hedging and whatnot. But I mean, is the $0.70 realized rate in '27 a reasonable expectation based on how the hedging is rolling off?

Yes. Look, we've got -- in the first half, our hedge book has still got a 6 in front of it. But as we go through the period, we are then getting the benefits in the second half of the hedge books placement at the current levels. And obviously, we don't hedge everything. So, there is some benefits that are building over the course of the year for that to be a tailwind and certainly it's a tailwind.

Next question comes from the line of Tom Kierath with Barrenjoey.

Yes. Just another one on the rebel gross margin. You talk about improved promotional discipline. Can you maybe just talk through exactly what you've changed there and whether that likely continues, the benefit from that likely continues through '27?

Yes. I think I spoke about this a little bit at the half year results. And we've actually -- we had value even pre-Christmas out in the market. We weren't doing a great job in the discipline of showing that value to our customers. And the team have done a really good job post-Christmas to make changes more so in stores and online that are benefiting us and the consumer now can see that value. What I would say, Tom, is we've got a lot of work to do in this space. So, I was with Kendall over in Carousel in WA last week and her challenge to me is we can do a much better job in this space, which was evident on the store visits. And I would say that's applicable to all our brands. In these challenging times for consumers, we have to show the great value that we're giving to them.

And then secondly, just on stock loss, I don't think you're calling out a benefit there in rebel. How are you kind of -- how are your trials doing there? Do you think you can get some benefit or some of the, I guess, the margin back that you've lost over the last few years from high stock loss and theft?

Yes. Yes. Tom, thanks for the question. We've stabilized. I would say we've stabilized, particularly we saw the issue down in Victoria, in particular. We've implemented activities everything from gates through to body-worn cameras that's been received really well with our team members to screens that we've got in-stores. So, we're busy implementing that. We'll implement a fair bit pre-Christmas, and then we'll continue that program post-Christmas and we'll be measuring it very, very closely. But I'm pleased with the progress that the team have put in place, as well as the basic disciplines that I talked about at the half year, which is about inventory discipline, how our stores count products. And we're also -- we're looking at areas like RFID and you go, that will be trial pre-Christmas. So yes, I'm pleased with the progress, Tom.

Next question comes from the line of James Leigh with Goldman Sachs.

And echoing the comments around David. My first question is around the gross margin for Supercheap and how we should think about that and promotional intensity? I note that we're going into, call it, like the mix shift has been slightly negative. When do we expect that to kind of stabilize? And then secondly, just around how we're seeing the market. One of our competitors just talk to what to me implies kind of a flattish second half or first half '27. How are you thinking about the market for the first half?

Yes. To answer your question, James, we're very focused on what the customer wants, first and foremost. So, a bit like we did with our oils campaign, testing, learning, and we'll learn from that. What I would say is Ben McConnell, the team in Supercheap are really focused on putting the right range out for our customers. And that will have a change as we did in BCF, a change in mix, but also have an increase in volume and more importantly, meet our customer needs, which the team are on. So it's a balance, the promotional balance. That's Retail 101 for me, but we will be very, very disciplined in how we re-range and bring those products in. But we're having great success on products like NGK, Rhino-Rack as an example, and that's resonating really well with our customers. So, yes.

That's helpful. And then just quickly on wage costs. I know we've got the EA agreement into FY '27. How should we think about that cost moving more into '28?

Yes. That's always a challenge. You just look at the junior rate, I assume you'll be referring to an EA that kicks in, in the next calendar year. Our role is to make sure that we are reducing costs from the broader business to offset any increases in any areas. We've got an Ignite program, and that's not wage-based. But we want to invest in that space. So, we're taking costs out of that business elsewhere. I don't know whether you want to add anything, Dave?

Yes. We've got the EA in place for this financial year. And if you look at the increases that have come through Gruyere, we will need to, as we go into the '28 year, have an increase in our EA rates to compensate for the benefit we've had this year. So, there will be a headwind in 2028. But as Paul has outlined, we're looking at initiatives to try and moderate or minimize the year-on-year impact of that as we go through the '28 year. And so we've got sort of, in some sense, a bit of runway to put those actions in place and be prepared for that slight increase that we're going to have to factor in, in the '28 financial year.

Next question comes from the line of Shaun Cousins with UBS.

Maybe my first question is just around Supercheap Auto. Can you dig into the impact that the Middle East conflict has contributed possibly to sort of softer volume or softer demand, but then also the inflation benefit? I was curious around the inflation benefit you might have got in the second half or even if some -- there's possibly more inflation than usual in, say, that first 7 weeks, 4%, particularly the oils campaign, which I assume has gone up a reasonable amount.

Yes. Thanks, Shaun. Yes, the mix of product has shifted, especially once we got over the shock of the war and the impact on fuel, then we saw a change and consumers were probably less in their leisure activity, but certainly taking care of the vehicles they've got. So, we've seen a mix shift into other areas like seat covers, et cetera, as an example. To the margin, yes, there's inflation in that category, but equally, our customers are looking for value. And they got value with that Best Performing Oils campaign that we've just landed, and we will be very sensitive to that. So yes, I don't know if you want to add anything.

Yes. Look, we're seeing, obviously, oil-based products have got inflationary pressures coming through and some of those, we just have to eat and to some degree, pass on. So, certainly oil lubricants, aerosols and paints are the key categories we've seen some inflation that you just have to take and some of that the customer is going to take. But as we've just -- as Paul just said, then there is a stronger value orientation and therefore, a strong response to when we do go on promotion.

I'd add to it as well. We've got good relationships with our trade partners and working together to build your brands out as the consumer changes is very important.