Following a second half trading update by
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-Five of six brokers in the FNArena database are Buy-rated or equivalent
-Positive changes overlooked with the focus on covid impacts
-Elevated inventory concerns overstated
-The macroeconomic outlook may weigh
A second half trading update by
As no lockdown tailwinds were blowing over the period,
As a result, there are now five of six covering brokers in the FNArena database with a Buy or equivalent rating and an average 12-month target price of
The company has brands that include Supercheap Auto, Rebel, BCF and Macpac in 700 stores across
Overall, like-for-like sales increased by 4.4% and the gross margin was in-line with the first half. Given commentary in February around some moderation in gross margins, Overweight-rated Jarden believes a stable margin is a good outcome. The broker, not one of seven updated daily in the FNArena database, also expected slowing second half sales.
The trading update also demonstrated to Citi continued strength in sales, particularly for Supercheap Auto and BCF. This strength is thought to expose exaggerated market concerns around the company's elevated inventory position.
Apart from Rebel, the trading updates were stronger than Credit Suisse had forecast for all brands. Highlights included a comparable store sales increase of 8.4% year-on-year for Auto and 7.6% for BCF. While the company had increased overall inventory investment in the first half, Rebel's performance was impacted by limited stock availability, particularly in footwear.
Meanwhile, management continues to point to growth opportunities in expanding its store network and from increased online penetration. Only once supply chain disruptions pass and trading conditions normalise will capital management be considered.
Inventory
Super retail has held elevated levels of non-perishable inventory due to the disrupted supply chain since FY21.
While this has concerned some market participants, Citi points to management's track record of sourcing private label product and ongoing robust sales trends. As the first half accumulation of inventory was mostly concentrated in Supercheap Auto and BCF, there's considered to be minimal ageing risk.
Despite the recently limited footwear stock availability, Macquarie points out Rebel is benefitting from improved foot traffic, while Macpac has inventory in place for the key winter period and the expected upside from the reopening of international travel.
Positive changes hidden by covid impacts
In the last two years there have been 2.4 million members added to
Another positive change, according to
Some caution on the outlook
While the Neutral-rated Macquarie upgrades its earnings forecasts as a result of the trading update, its target price falls to
Jarden (Overweight) also noted the macroeconomic backdrop is becoming more challenging, which creates growing risk for the company coming into FY23.
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