The Bull

Wednesday 18

October, 2017 4:05 AM


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Super Retail Group ready to run faster

Super Retail Group ready to run faster

By Tony Featherstone 31.07.2017

My son has taken up hockey. That meant buying a hockey stick, bag, ball, mouthguard, shin guards and uniform – and a trip to Rebel Sport. So far, it’s money well spent. 

My daughter loves netball. A netball ring, multiple balls and a uniform added to the expense. It’s worth it to see kids playing sport, exercising and socialising.

Me? I’ve taken up squash again after a 30-year hiatus. That meant a trip to Rebel to buy a racquet, shoes, ball, a bag and extra sports clothes. Costs add up and I haven’t included the physiotherapy sessions needed for my shoulder after the first season!

Sport equipment is big business. The sporting goods market in the United States alone is worth US$65 billion, estimates Statista. Specialist US retailer, Dick’s Sporting Goods, sold US$6.5 billion of equipment in 2015, second only to Wal-Mart.

Several trends are driving growth. Higher rates of global obesity are encouraging more people to exercise, and more parents to ensure kids are active.  Many schools are increasing time devoted to sports and play time, to combat rising obesity.

‘Hot-housing’ of children is another factor. Kids are spending extra time in organised activities after school, such as sporting lessons, and less time running around in the back yards. Commitments for multiple sports each week are not uncommon. 

Booming demand for athletic wear (athleisurewear) is another driver. Witness the number of mums who wear compression tights or dads who don the lycra casually (often, when they shouldn’t!). Even kids seem to be wearing costlier athletics clothes these days.

Technology is another driver. Step-trackers, such as Fitbits, encourage people to walk more, which means rising demand for sports shoes and other athletic gear. As their fitness improves, people take up other sports. That was my experience with squash.

The ‘amateurisation’ of professional sports is another trend to watch. Kids and adult weekend warriors want the same products, clothes and the technology as their sporting heroes. Look at middle-age men spending thousands on fancy bikes.

Thus, Australia’s sporting goods market should enjoy solid, sustainable growth over the next 50-10 years as these trends unfold. More kids playing more sports, and using pricier products, has to favour Super Retail Group’s Rebel Sports chain, the market leader. 

Super Retail, of course, offers much more than sports. Its Super Cheap Auto and Boating Camping Fishing operations are key divisions. Goldcross Cycles, Rays and Amart Sports, which Super Retail this month said is being rebranded as Rebel, are other its brands.

Sports retailing, worth 38 per cent of Super Retail’s revenue, is the key to the stock’s re-rating. The sports equipment market is highly fragmented and the strategy to consolidate Rebel and Amart under one brand is smart. Super Retail should have done it earlier. 

Like many retailers, Super Retail has had a tough time on the market. Its share price has fallen from a 52-week high of $11.19 to $8.35. The three-year annualised total return (including dividends) is slightly negative and over five years it is 5.4 per cent.

That’s disappointing for a company of Super Retail’s quality. The market, unfairly in my view, is convinced that Amazon’s eventual ramp-up in Australia will take a big chunk from our sporting goods market. We’ll all buy hockey sticks online, not in-store. 

The Amazon threat is overstated for Rebel. In the US, Amazon has hurt small sporting goods retailers, but the largest are fighting back. Dick’s Sporting Goods’ sales of sporting equipment are several times larger than those of Amazon and the company this month announced it would match prices from Amazon and other online competitors. 

Some products lend themselves to online purchases. I’m not sure sporting equipment is a natural fit. I cannot imagine a young hockey enthusiast not checking out different sticks in-store, or buying sports shoes online without having them fitted in-store. 

It’s a bit like home-improvement enthusiasts visiting Bunnings as part of their Saturday morning ritual, or taking their pet to Greencross’s Petbarn on Sunday. People who buy costly sporting equipment, for the first time, want advice and to try products instore.

The main problem is price deflation. Combining Rebel and Amart should create better economies of scale and reduce overlap; Rebel was encroaching into Amart’s discount market position. Consolidation also provides more firepower to take on Amazon when it arrives.

Either way, Super Retail looks a touch undervalued. A price target of $10.21, based on a consensus of 12 broking firms, compares to the current $8.35. Macquarie’s 12-month price target is $12.60. Skaffold values the stock at $9.48, rising to $11.28 in 2018.

It could take time for Super Retail to win back the market’s confidence as the Amazon threat looms. But underlying trends are strong in sports goods and investors have already factored in the Amazon threat into Super Retail at the current share price. 

Chart 1: Super Retail Group
Source:  The Bull

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• Tony Featherstone is a former managing editor of BRW and Shares magazines. The information in this article should not be considered personal advice. The article has been prepared without considering your objectives, financial situation or needs. Before acting on the information in this article you should consider its appropriateness, regarding your objectives, financial situation and needs. Do further research of your own or seek personal financial advice from a licensed adviser before making any financial or investment decisions based on this article. All prices and analysis at July 25, 2017.


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