Today’s results from Supergroup (LSE: SGP) and Sports Direct (LSE: SPD) are markedly different. In the case of the former, it has reported a 30% fall in profit to £12.5 million for the first half of the year as a result of unseasonably warm autumn weather affecting sales of its autumn/winter collection.
With Supergroup relying heavily on sales of outerwear, the warm weather has hurt the company more than most, although it is sticking to its previous guidance of profit of £60m-£65m for the full year due to the second half of the year historically being much better for the business. As a result, shares in Supergroup are only marginally down at the time of writing.
Meanwhile, Sports Direct continues to go from strength to strength. Although England’s early exit from the football World Cup had a detrimental effect on sales, Sports Direct was still able to grow underlying profit before tax by 9.8% to £160 million in the first half of its financial year. A key reason for this was improved margins in Sports Retail, with them increasing by 1.3% to 44.5%, while European expansion continues to deliver growth for the company’s top and bottom lines.
For example, Sports Direct is rebranding stores in Austria and opened its first store in the Baltics, while in the UK its planned concessions in Tesco and Debenhams may also provide its bottom line with additional momentum moving forward. A move into the provision of gyms could also offer growth potential over the medium term, with Sports Direct acquiring 18 gyms from LA Fitness.
Growth Potential
While their first halves were very mixed, both Supergroup and Sports Direct have considerable growth potential. For example, Supergroup is forecast to grow its bottom line by an impressive 18% next year, while Sports Direct is expected to post a rise in earnings of 21% in the current year, followed by 16% next year. Clearly, Sports Direct appears to be more on-target to achieve its guided numbers after its impressive first half performance.
Valuation
However, Supergroup seems to offer better value for money than Sports Direct at the present time. For example, its shares trade on a price to earnings (P/E) ratio of 14.3, while those of Sports Direct have a P/E ratio of 18.3. With their forecast growth rates being broadly similar, this means that Supergroup’s price to earnings growth (PEG) ratio of 0.8 is lower (and more appealing) than Sports Direct’s PEG ratio of 1.
Looking Ahead
Clearly, Supergroup has experienced a challenging first half of the year and, while it was mainly due to external factors, the new CEO, Euan Sutherland, is focused on tightening up areas that he feels the company can make improvements on. As a result, it would be of little surprise for there to be more short term disappointment for Supergroup and, as such, its share price may be more volatile than that of Sports Direct in the near term.
However, with it offering better value and comparable growth prospects, Supergroup appears to be a better buy than Sports Direct at the present time. And, while both of them could be strong performers over the medium term, Supergroup could prove to be the winner of the two in terms of share price performance.
