Superdry warns on profit amid 'weak' trading

Fashion brand Superdry warned on Thursday that full-year pre-tax profit would fall short of market expectations as its trading performance continues to be weak, just weeks after founder Julian Dunkerton returned to the company.

In a pre-close trading statement for the 13 weeks to 27 April, Superdry said annual profits will be below the forecast range of £54.1m to £59.4m amid a weak performance from the wholesale and e-commerce segments.

The company said group revenue fell 4.5% in the fourth quarter, with store sales up 2.2% but wholesale and online revenue down 9.3% and 3.9%, respectively.

However, it also said that following management changes early last month, initial actions to stabilise the performance and improve its long-term prospects are already being implemented.

Interim chief executive officer Dunkerton said: "I am very excited about being back in the business. There's a lot to do, but after five weeks, I am more confident than ever that we can restore Superdry to being the design led business with strong brand identity I know it can be.

"My first priority has been to stabilise the situation, and all of us in the business are putting all our energy into getting the product ranges right and improving the e-commerce proposition, which are two important steps towards addressing Superdry's recent weak performance. The impact of the changes we are making will take time to come through in the numbers but I'm confident we are heading in the right direction."

At 1100 BST, the shares were up 0.5% at 482.80p, reversing earlier losses.

Russ Mould, investment director at AJ Bell, said: "They say profit warnings come in threes and that is certainly the case for troubled fashion retailer Superdry.

"Co-founder and interim CEO Julian Dunkerton has only been back in the hot seat for five weeks so no-one can really blame him for the sub-standard performance which includes several months where he wasn’t in the business. The news also doesn’t come as a surprise, hence why the share price has only reacted mildly today.

"However, the latest profit warning is a stark reminder about the scale of the problems facing the business and the mountain Dunkerton has to climb to get it back on track. There is no point him having an aggressive profit target at the moment given the radical changes planned for the business. Stability is at the top of the agenda with earnings growth down the line once everything is in the right position.

"His priority is to improve the online offering, put more stock into the best stores, cut discounting and introduce new products.

"Dunkerton will probably have a good six months’ grace period in order to get the business in shape and start executing on plans before the market starts to truly judge his performance. Until then it is likely to be a choppy period for the retailer."

Shore Capital analyst Greg Lawless said the statement highlights the challenges ahead for the new management team.

"The focus in the last month has been addressing product ranges and improving the online proposition. There remains much to do to restore the Superdry brand to be a growth story again. It is perhaps not a surprise to see the new management team lowering the previous regime’s profit guidance and all eyes will be on the forthcoming prelim results on July 4 for the new management team to articulate the strategic direction, targets and milestones to deliver sustainable growth."

RBC Capital Markets said: "As we have previously stated, we view consensus estimates as too high for FY19E and the subsequent years (unchanged since December 2018), which do not appear to reflect the change in management and potential for further profit warnings as the business works through legacy inventory and rebases for the future.

"The opportunity is for Superdry to once again reinvent itself, under the leadership of co-founder and majority shareholder, and find relevance amongst a younger consumer group, against the backdrop of a crowded apparel marketplace.

"However, consensus estimates appear too high, and not reflective of a turnaround scenario, which may lead to expectations rebasing, despite the shares post trough. Execution risk over the next 12-24 months is the major roadblock for us to turn more positive for now."