Shares in fashion outfit Superdry (SDRY) crash 34% to 377.6p as the Cheltenham-headquartered retailer coughs up worse than feared first half figures, and another profit warning.
The company is blaming unseasonably warm weather for crimping demand for jackets and sweatshirts on which it makes better profits.
Analysts are pushing through further material earnings downgrades and with Superdry confessing to ‘a lack of innovation’ in core product categories, we’d expect support for co-founder and creative driving force Julian Dunkerton’s return to the fold to increase.
HOT WEATHER HURT
Superdry’s results for the half ended 27 October are crushingly disappointing, with underlying pre-tax profit down a shocking 49% year-on-year to £12.9m, missing consensus by 5%.
Global brand revenue growth of 6.4% to £831.8m appears subdued too, the retail store performance held back by persistently balmy temperatures across the UK, Europe and America’s East Coast. This is distinctly unhelpful as 55%-to-60% of Superdry’s Autumn Winter revenues are driven by jackets and sweats. Management also blames ‘a weakening, discount-driven consumer economy’ for suppressing demand for ‘the cold-weather clothing that has traditionally underpinned Superdry’s offer to consumers.'
But the major selling catalyst is the bleak current trading and outlook statement (provided in full below), in which the premium clothing and accessories brand guides to a new pre-tax profit range of £55m-to-£70m. That is not only significantly below the previous consensus of £87m, it is also down from the £97m delivered last year.
‘Unseasonably warm weather has continued through November and into December (Superdry’s two biggest trading months in the year) across all of our key markets. Given Superdry’s reliance on cold weather related product continues and a lack of innovation in some of its core categories, sales have remained under pressure despite a strong performance in the Black Friday week. This has resulted in an adverse profit impact of around £11m in November and the company expects a potentially similar profit impact in December if trading conditions do not improve.'
Superdry then adds: ‘There is still considerable uncertainty in terms of the weather outlook, the changing shape of consumer behaviour in the peak trading period and the impact of wider economic and political uncertainty.’
AN ABSOLUTE DRUBBING
Shares in Superdry have had an absolute drubbing in 2018, stirring major shareholder Dunkerton (pictured below) into mounting a campaign to get his old job back running the business. Incumbent CEO Euan Sutherland is now on the defensive, confessing to issues ‘in product mix and range’ which are being addressed.
THE EXPERTS’ VIEW
Liberum Capital slashes its full year 2019 pre-tax profit forecast by 22% to £63m, roughly in-line with the mid-point of guidance, and downgrades outer year profit forecasts to reflect ‘weaker trading more than offsetting any savings being made as part of the company’s efficiency drive.'
Russ Mould, investment director at AJ Bell, explains ‘former chief executive Julian Dunkerton has made his thoughts very clear in recent weeks that the current management have made several strategic mistakes and that he should have his old job back. He criticises the decision to reduce product lines and have the same product in store, online and in wholesale.
‘The half year results show falling sales in its physical stores, a deterioration in gross profit margins and operating margins; a massive drop in profit and no growth in the dividend.
‘At the end of the day you have to ask: does the public still want to wear its products? Its brand is associated with clothes that have Japanese writing on them. That seems like a fad which may have peaked.
‘Superdry should really think about how to differentiate itself from the competition, such as through product quality, superior levels of customer service and stores that offer a pleasant shopping experience. It needs to be more creative and give customers plenty of choice.
‘The retailer’s share price is now down 81% in the past 12 months. Shareholders will be fuming, including Dunkerton who maintains a decent sized stake. Perhaps activist investors will target the business and back Dunkerton in trying to save the business.'
