Five strategy lessons from the best small and mid-cap profit results

Australia’s bi-annual profit reporting season provides investors, analysts and the business community with a chance to gauge how our top companies are travelling, how the economy is performing and what strategies working.

For entrepreneurs it’s a rare chance to see how their biggest rivals are performing, which markets are going well, how margins are holding up and where problem areas lie.

With that in mind SmartCompany scoured profit reports from some of Australia’s small and mid-cap market to extract five strategy lessons that apply to a range of businesses across a range of sectors.

Never lose sight of your cost base – Super Retail Group

Super Retail Group, until recently known as Super Cheap Auto, produced a bumper profit result yesterday – revenue up 21.2% to $561 million and profit up 60% to just under $25 million. In a difficult retail environment that’s very impressive. Perhaps more impressive is the fact that in an environment where discounting is rife Super Retail was able to increase its margins by cutting costs. One method used was to set up a sourcing business in China which allowed Super Retail to cut out the middle man and buy products directly from manufacturers.

Don’t be afraid to list prices – CarSales.com.au

CarSales.com.au’s dominant position in the automotive classifieds market helped it lift net profit by 45% to $27.6 million in the first half of the 2010-11 year, which is pretty impressive given revenue was just $72 million. Part of the success was driven by price rises – from $50 to $60 for a standard ad and $80 to $90 for a premium ad. Those prices are well below those of print so it doesn’t have too much to fear in the way of consumer backlash. Raising prices is never easy, but if you have a strong market position it is possible.

Make growth happen – Retail Food Group

Franchise brand manager Retail Food Group produced its fifth consecutive record interim profit last week but it wasn’t easy. Chief executive Tony Alford and chairman John Cowley listed a number of problems in their media release, including poor “depressed shopping centre development, a tightening of franchisee applicants, constricted bank … depressed shopping centre foot traffic, subdued consumer spending, burdensome labour laws” and poor weather. So how did they boost profit by 8.9%? By creating growth via the acquisition of the Esquires Coffee Houses chain and working their brands – including Brumby’s, Donut King and Michel’s Patisserie – very hard.

Build brand trust – RCG Corporation

The sustained success of RCG Corporation – best known as the owner of The Athlete’s Foot chain – through the retail downturn continued this week when the company posted a 71% increase in revenue to $19.8 million and a 35% increase in net profit to $3.9 million. The secret is brand loyalty. The company invests heavily in staff who are trained to fit running shoes for customers and it has established itself at the premium end of its market – with prices to match. That helped to insulate RCG from the discounting war smashing fashion retailing at the moment.

The market moves in mysterious ways – Billabong and Seek

Surfwear chain Billabong reported an 18% drop in net profit and watched its shares jump 12%. Seek produced a 31% increase in net profit and watched its shares fall almost 10%. The key is meeting market expectations. Billabong has been struggling against the high Australian dollar and fragile retail environment but investors were upbeat about the company’s outlook. Seek missed analyst profit forecasts and was punished accordingly. The lesson? Always under-promise.