Super Retail Group has warned shareholders of pressure on profit margins and rising costs, citing subdued trading conditions, intensified discounting, and a costly overhaul of internal systems.

In a trading update released to the ASX on Wednesday, the retail group, owner of Supercheap Auto, Rebel, BCF and Macpac, said group gross margin for the second half to date was tracking below the same period last year.

The update also noted that the margin weakness was consistent with declines recorded in the first half.

While like-for-like group sales grew 3.1% since January, up from 1.8% in the first half, trading conditions remained challenging, particularly in New Zealand.

The company flagged weaker performance at Supercheap Auto, where sales dipped 0.1%, and Macpac, which posted a 0.1% decline.

Rebel delivered 3.5% growth despite a $5 million hit from Cyclone Alfred, while BCF led the group with a 9.1% rise in sales, driven by strong stock availability and a solid Easter period.

The company also flagged significant cost increases related to major system upgrades.

It is replacing its ageing payroll infrastructure and building a new HR platform, while also transitioning to a new distribution centre in Victoria.

These initiatives are expected to push unallocated costs to $42 million this financial year and $29 million in 2026.

The update comes as Super Retail continues to face reputational challenges, including a pending court case involving allegations of an improper relationship between CEO Anthony Heraghty and a former executive, as well as an ongoing wage theft case after the company admitted to underpaying staff by over $60 million.

Super Retail is scheduled to present at the Macquarie Australia Conference on Thursday.