A strengthening Australian dollar is emerging as a potential margin tailwind for Super Retail Group, according to a recent note to investors from Jarden, which shows the retail group could see meaningful benefits flowing through its sourcing costs over the coming year.
The broker told investors that the Super Retail Group’s first-half FY26 result delivered few surprises, with group EBIT down by 2.8 per cent year-on-year. However, trading momentum has improved early in the second half, led by stronger performance at Supercheap Auto and BCF, alongside seasonal tailwinds for outdoor categories, boding well for Super Retail's other subsidiaries Rebel and Macpac.
Cash generation also remained robust, with Jarden highlighting cash conversion of around 125 per cent in the first half, clean inventory levels and lower capital expenditure, even as full-year guidance for capex remained unchanged.
The key emerging catalyst flagged by the broker is foreign exchange.
Jarden said a stronger Australian dollar could deliver a meaningful uplift to gross margins if current currency trends persist and group sales growth continues. The uplift would primarily flow through sourcing costs, given the retailer’s exposure to US dollar-denominated purchasing.
“Currency was called out as a tailwind as they go into the second half of the calendar year,” the broker said, noting the benefits are likely to be slightly delayed due to the group’s hedging policy.
Super Retail Group hedges between 50 and 75 per cent of expected US dollar purchases for the next four months, and up to 50 per cent for the following five-to-12-month period. This is according to its recently released first-half presentation.
In the first half of FY26, the group’s average realised AUD/USD exchange rate was 0.648, compared with 0.668 in the prior corresponding period.
This comes as the Australian dollar nudged up to just over 70 US cents in early February, now sitting at around 70.63 US cents.
The potential FX benefit comes alongside a number of structural margin drivers the broker expects to emerge from FY27, including supply chain efficiencies and improved promotional discipline. Rebel’s margins in particular were shaken down in the first half due to ongoing discounting, falling 40 basis points. Macpac’s margins also fell by 60 basis points.
Jarden said Rebel’s margin slip could be a sign that it is feeling pressure from the rollout of Sports Direct in Australia by Accent Group. “We think Rebel needs to revert back to its brands focus and work with suppliers to establish market competitive pricing architecture, to minimise the risk.”
Jarden also pointed to the company’s automated distribution centre rollout as a longer-term margin lever, with the system expected to reduce markdowns, improve product availability and lower third-party logistics costs once fully embedded.
Additional upside may also come from loyalty initiatives and operating leverage as sales growth accelerates.
The group’s total portfolio maintains more than 30 per cent market share across its core categories, according to the broker. Despite this scale, Jarden said recent earnings volatility, competitive pressure and leadership change have weighed on the company’s market multiple.
According to the broker, Super Retail Group is currently trading on an implied EBIT multiple of around 12 times, compared with more than 20 times for diversified retail peer Wesfarmers, owner of Bunnings, Kmart, Target and Officeworks.
Jarden maintained an “overweight” rating on the stock and lifted its 12-month price target to $17.20 from $16.80, citing stronger cash flow and modest upgrades to earnings forecasts. Super Retail’s current stock price sits at $14.60, a slip from a recent high of $15.82, but up from a recent low of $13.96.
The broker said the next key catalyst will be the group’s strategy day on June 11, where new CEO Paul Bradshaw is expected to outline plans to expand market share across the company’s estimated $60 billion total addressable market, according to Jarden.
The broker added that management is expected to focus on execution, digital capability, range expansion and better use of customer data to reinforce the group’s position as a “category killer”.