Investment In Rebel Active Loyalty Program And Digital Transformation Will Boost Customer Engagement

Key Takeaways

• Loyalty programs and digital transformations aim to enhance customer engagement and boost future revenue and net margins through improved customer loyalty.
  
• Expansion and operational strategies, including new stores and automation, focus on improving sales capacity and logistics for increased revenue and efficiency.
  
• Rising competition and cautious consumer spending, along with inflationary pressures and stock loss, threaten Super Retail Group's profit margins and revenue growth.

Catalysts

Engages in the retail of auto, sports, and outdoor leisure products in Australia and New Zealand.

• The continued investment in loyalty and digital capabilities, specifically the Rebel Active loyalty program and digital transformation, aims to drive incremental revenue and enhance customer engagement, potentially boosting future revenue and net margins.
  
• Expansion efforts, including the opening of 28 new stores in FY '25 and the upgrade to a new automated distribution center set for FY '26, are expected to improve revenue through increased sales capacity and enhance logistics efficiency.
  
• The successful execution of peak trade periods and improved in-stock positions indicate strong operational capabilities, which could lead to higher revenue from optimized sales during crucial periods.
  
• Growing the active customer membership base and enhanced Net Promoter Scores suggest a loyal customer base, which translates to a stable revenue stream and potential for higher margins due to reduced reliance on price promotions.
  
• Strategic brand partnerships and expanded product offerings, such as the performance of Rebel's footwear and sports tech categories, could lead to higher sales and potentially improved gross margins through favorable product mix.

Super Retail Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Super Retail Group's revenue will grow by 4.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.7% today to 5.8% in 3 years time.
• Analysts expect earnings to reach A$261.4 million (and earnings per share of A$1.15) by about February 2028, up from A$226.5 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as A$229 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.3x on those 2028 earnings, up from 14.0x today. This future PE is lower than the current PE for the AU Specialty Retail industry at 17.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.15%, as per the Simply Wall St company report.

Super Retail Group Future Earnings Per Share Growth

Risks

• Super Retail Group faced a more challenging retail environment with cautious consumer spending and increased competition, which could impact revenue growth.
  
• Rising inflationary pressures on key costs of doing business, such as wages and rent, could negatively affect net margins.
  
• A 70 basis point decline in gross margin and ongoing elevated stock loss activity, particularly impacting the Rebel brand, pose risks to earnings.
  
• Intense competitive activity, especially in the auto category, and the need for promotional discipline might strain profit margins if not managed effectively.
  
• Volatility in foreign exchange rates and the potential lag in passing on price increases could threaten gross margins and future earnings.

Valuation

• The analysts have a consensus price target of A$14.955 for Super Retail Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$18.0, and the most bearish reporting a price target of just A$11.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$4.5 billion, earnings will come to A$261.4 million, and it would be trading on a PE ratio of 16.3x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of A$14.0, the analyst price target of A$14.96 is 6.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.