Super Retail Group FVE Cut After Reassessing of Competitive Dynamics

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Equity Bottom-Up

No-moat Super Retail Group has announced that its sports retailing division will be retiring the Amart Sports brand and focusing solely on Rebel. We view this consolidation positively, as it allows management to concentrate its energy on a single brand and accelerate its private-label aspirations. Nevertheless, we see the sports division as the most vulnerable to the evolving competitive environment, and we retain our fair value estimate of AUD 9 per share.The focus on the Rebel brand is sensible, as Super Retail continues to work on differentiating its businesses and building a robust omnichannel offering in sports retailing. While we view the consolidation positively, it is not without risks. Ensuring the retention of Amart customers, who currently contribute almost 30% of segment sales, is crucial. Structurally, we view the sports segment in general as more vulnerable to online competition than the auto and leisure divisions, as staff are better placed to provide expertise on more complex products in the auto and leisure segments.With all Amart Sports stores converting to Rebel before the key Christmas 2017 trading period, Super Retail is projecting post-tax noncash costs of AUD 34 million in fiscal 2017. This consists mainly of an impairment of the Amart brand name, in addition to write-downs of fixtures and fittings, and a provision for inventory clearance. Around AUD 3 million in after-tax cash transformation costs will also be recognised in fiscal 2018. Super Retail expects to realise synergies of AUD 15 million annually, from fiscal 2020, consisting of improvements in gross margin, marketing efficiencies, and savings in support functions.In addition to the strategy update for the sports division, management took the opportunity to guide to fiscal 2017 EBIT at the upper level of previous guidance of a 16%-18% growth range. This is consistent with our fiscal 2017 EBIT forecast of AUD 207 million, equating to an increase of 18% over fiscal 2016.Analysts: Johannes Faul, CFA and Angus Hewitt

No-moat Super Retail Group has announced that its sports retailing division will be retiring the Amart Sports brand and focusing solely on Rebel. We view this consolidation positively, as it allows management to concentrate its energy on a single brand and accelerate its private-label aspirations. Nevertheless, we see the sports division as the most vulnerable to the evolving competitive environment, and we retain our fair value estimate of AUD 9 per share.The focus on the Rebel brand is sensible, as Super Retail continues to work on differentiating its businesses and building a robust omnichannel offering in sports retailing. While we view the consolidation positively, it is not without risks. Ensuring the retention of Amart customers, who currently contribute almost 30% of segment sales, is crucial. Structurally, we view the sports segment in general as more vulnerable to online competition than the auto and leisure divisions, as staff are better placed to provide expertise on more complex products in the auto and leisure segments.With all Amart Sports stores converting to Rebel before the key Christmas 2017 trading period, Super Retail is projecting post-tax noncash costs of AUD 34 million in fiscal 2017. This consists mainly of an impairment of the Amart brand name, in addition to write-downs of fixtures and fittings, and a provision for inventory clearance. Around AUD 3 million in after-tax cash transformation costs will also be recognised in fiscal 2018. Super Retail expects to realise synergies of AUD 15 million annually, from fiscal 2020, consisting of improvements in gross margin, marketing efficiencies, and savings in support functions.In addition to the strategy update for the sports division, management took the opportunity to guide to fiscal 2017 EBIT at the upper level of previous guidance of a 16%-18% growth range. This is consistent with our fiscal 2017 EBIT forecast of AUD 207 million, equating to an increase of 18% over fiscal 2016.Analysts: Johannes Faul, CFA and Angus Hewitt

Super Retail Group Consolidates Sports Division