Rising Costs and Legal Risks Cloud Super Retail Group’s Earnings Outlook

Solid Sales Growth Amid Challenging Profitability

Super Retail Group Limited (ASX: SUL) has delivered a mixed set of results for the 26 weeks ended 27 December 2025. The company reported a 4.2% increase in revenue to $2.19 billion, supported by a net addition of six stores and robust online sales growth of 8.8%, which now accounts for over 14% of total sales. Despite this top-line growth, net profit after tax fell by nearly 20% to $104.1 million, reflecting margin pressures and rising operational costs.

Margin Compression and Rising Costs Weigh on Earnings

The decline in profitability was largely driven by a 20 basis point reduction in gross margin to 45.4%, attributed to increased promotional activity, particularly within the rebel brand. Normalised cost of doing business rose by 70 basis points to 37.6% of sales, impacted by higher wages, occupancy expenses, and investments in store refurbishments and network expansion. Additionally, the company incurred significant project costs related to its new Victorian distribution centre and an upgrade of its HR Core and Payroll systems, both slated for completion in the second half of FY26.

Segment Performance Highlights Divergence

Segment results were varied. Supercheap Auto posted a 5.1% sales increase and a 4.5% rise in profit before tax, maintaining stable margins despite elevated promotional activity in the category. Macpac delivered a strong performance with 13.1% sales growth and a notable improvement in profit margins, benefiting from operational efficiencies and store reductions. Conversely, rebel experienced an 11.4% decline in profit before tax amid increased promotional intensity and elevated costs from store activity. BCF’s sales were flat on a like-for-like basis, with profit down 12.3%, affected by challenging seasonal conditions in southern Australia.

Healthy Cash Flow and Balance Sheet Position

The Group’s cash flow from operations rose 7% to $415.7 million, with strong cash conversion of 124.7%. Capital expenditure was reduced to $62.1 million in the half, reflecting a lower weighting of full-year investment, while the company maintained a net cash position with no drawn bank debt and a cash balance of $107.8 million at period end. The Dividend Reinvestment Plan remains suspended, with the Board declaring a fully franked interim dividend of 32 cents per share payable on 2 April 2026.

Ongoing Legal and Regulatory Matters

Super Retail Group continues to carry provisions related to employee wage remediation and regulatory proceedings initiated by the Fair Work Ombudsman. While the remediation program is substantially complete, the outcome and total costs associated with ongoing litigation remain uncertain. The Group disclosed a $14.1 million provision for potential liabilities arising from these matters, with a final hearing scheduled for December 2026.

Outlook Considerations

With investments in distribution and technology projects underway and a focus on expanding its store network, Super Retail Group is positioning itself for future growth. However, the near-term earnings outlook may remain pressured by elevated costs and competitive promotional environments, particularly in key segments like rebel. Investors will be watching closely how the company manages these headwinds while sustaining its strong membership base and online momentum.