Super Retail Group adds $135m Kiwi brand to portfolio
Super Retail Group (SRG) has announced that it will purchase outdoor apparel and camping equipment brand Macpac Holdings for $135 million with the intention of merging the struggling Rays business into the brand.
The deal will add around $85 million in annual revenue to SRG’s leisure division and address lingering concerns over the future of the Rays business, which management has been attempting to turnaround for some time.
Macpac, which began retailing in 2008, is a growing business, with 54 stores across Australia and New Zealand that booked a 20.9 per cent increase in total sales for the nine months to 31 December and a 7.4 per cent in like-for-like (LFL) sales over the same period.
The vertically integrated brand is expected to generate pro-forma earnings before interest, tax, depreciation and amortisation (EBITDA) of $14.9 million for the year to 31 March 18.
SRG will incur $4 million in transformation costs associated with the acquisition and around $13 million associated with the integration of the brands over the next two years.
The integration is expected to be completed by 31 March, with mid-single digit earnings-per-share accretion to be booked in FY19, before synergies set in.
Macpac’s managing director Alex Brandon will lead the combined business, reporting to SRG’s leisure division managing director Anthony Heraghty.
SRG managing director and CEO Peter Birtles said the acquisition is consistent with the group’s strategy for its leisure division, while the decision to merge Rays into the brand was made following its strategic review of the struggling business, under consideration for five months.
“The Macpac business has performed extremely well over recent years, yet there remains a significant opportunity to grow the business in the near future through opening new stores and growing its digital and commercial channels,” Birtles said.
“The integration of the business with Rays provides an opportunity to position Macpac as the leading outdoor adventure specialist across Australia and New Zealand.”
Poor performance within the Rays network drove sales down by 3.8 per cent to $299.1 million in the first-half of fiscal 18, offsetting 5.5 per cent sales growth at BCF.
Rays generated a $3.5 million earnings loss in the first-half, despite SRG’s new format delivering 4.1 per cent LFL sales growth in converted stores.
The combined business will include large and small format stores as well as digital and commercial sales channels.
Small format stores will offer an apparel range with limited footwear, equipment and accessories that are predominately Macpac branded; while large format stores will provide a more extensive range of products, both private label and branded.
SRG expects to incur synergies associated with supply chain procurement, marketing and operations, which it said will also assist sister brands BCF and Rebel.
SRG HY18 profit slides
SRG also reported its first-half results on Tuesday morning, unveiling a 3 per cent decline in net profit to $72.2 million.
Group earnings before interest and tax declined by 1.4 per cent to $113.6 million on the prior corresponding period (PCP), while sales increased by 2.2 per cent to $1.3 billion.
Normalised net profit, correcting for $2.7 million in restructuring costs, increased by .7 per cent to $74.9 million.
Supercheap Auto (the auto retailing division) was the group’s strongest performer, delivering a 3.9 per cent increase in earnings to $55.7 million on a 5.6 per cent increase in sales to $516.7 million, with LFL growth of 3.5 per cent.
On the back of the Amart Sports merger with Rebel, SRG’s sport division recorded a 1.6 per cent increase in earnings to $51.7 million on a 2.7 per cent increase in total sales to $503.8, while LFL sales increased by 1.1 per cent.
Poor trading at Rays drove weaker earnings in the leisure division, down 20.4 per cent to $16.4 million on the PCP.
Birtles said he was pleased with the overall result at a time of “unprecedented change” in the retail industry.
“We are encouraged that over the first half of the financial year we have increased our overall market share against our key competitors and markedly increased our share of the digital market in each out of our three markets in which we operate,” he said.
“Competing on net price and fulfilment will place some pressure on gross margins and winning on inspiration, experience and solutions will require investment in new omni-retail capabilities as we transform our operating model. This will constrain growth in operating margins through this period of transition and capability development.”
SRG said trading for the first seven weeks of the second-half had delivered growth across the group, with LFL sales growth of 4.5 per cent in Auto, around 2 per cent in leisure and around 1.5 per cent in sport.
SRG booked $10.2 million costs during the half, as well as $3 million in investment in its digital businesses and omni-retail initiatives.
$27.9 million was invested in new stores in refurbishments over the half, with a further $38.5 million in general capital expenditure projects.
Strong digital growth for Supercheap
SRG said that Supercheap’s key growth categories – including accessories, auto maintenance, tools and outdoor – drove strong transaction volumes and value growth for the business in the first-half, with digital sales up 128 per cent on the PCP.
Five new stores were opened during the half, and seven others were refurbished, bringing the total to 321 at 31 December.
Sport impacted by merger
Growth in apparel and footwear drove positive sales growth for Rebel in the first-half, but equipment sales were flat on the PCP.
Digital sales increased by 174 per cent on the PCP, with click and collect introduced in late October to coincide with the conversion of the final Amart Sports stores.
The merger of the brands increased store wages as a percentage of sales by 40 basis points, which alongside a 20-basis point decline in gross margin impacted earnings.
There were 168 Rebel stores at 31 December, including eight standalone RebelFit stores, which will soon be relocated to operate within existing Rebel stores as “stores within stores”.