Super Retail Group Ltd (SUL) $14.81

Retailer SUL, which has Macpac, Rebel, Super Cheap Auto & BCF in its stable, has experienced a tough few weeks, with its share price correcting over 20% in just a month, hitting 11-week lows on significant volume. We put this pullback down to two main reasons;

• Last week’s trading update from SUL was a touch soft showing growth had decelerated mildly relative to the update they provided in August,  some slight headwinds in Super Cheap and higher costs in Rebel.
• Bond yields have surged higher over the last month as markets receive positive economic data and they price in a Trump victory; SUL is highly correlated to bonds and, inversely so, to yields.

SUL sales rose 4% YoY in the first 16 weeks of FY25, with the company planning to open 25 more stores this FY, all pointing in the right direction if margins can be maintained. However, with US Treasuries on track for their worst month in more than two years as global interest rates get priced in to be “higher for longer”, one tailwind investors had expected has rapidly been removed. We are heading into Christmas trading, which is generally a good time for retailers; SUL has enjoyed an average gain in December for the last 20 years of 3.8%.

• We believe credit markets have swung from one extreme to another, with bonds now looking attractive from a risk/reward perspective – a bullish read-through for SUL.

We have added SUL to our Hitlist; we currently hold no discretionary retail exposure in the Active Growth Portfolio, having taken profit on JB Hi-Fi (JBH). This is one area our portfolio is light on, considering our current relatively dovish view towards interest rates.

• We are considering accumulating SUL for our Active Growth Portfolio  – MM is long SUL in our Active Income Portfolio.