Superdry blames the weather again as it warns on profits
A day after its shares tumbled on the back of a broker downgrade, Superdry warned on profit again, pinning the blame on the weather as it posted a slump in underlying interim profit.
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Superdry
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15:53 29/04/24
In the 26 weeks to 27 October, underlying pre-tax profit fell 49% to £12.9m, with group revenue up 3.1% to £414.6m. The interim dividend was held at 9.3p a share.
The revenue performance reflected continued growth in the company's e-commerce and wholesale channels, which offset a drop in its retail performance, with stores hit by "challenging" conditions on the high street and unseasonably warm weather across key markets of the UK, Continental Europea and the East Coast of the US.
Superdry said that with the warm weather continuing through November and into December, its reliance on cold weather products and a lack of innovation in some of its core categories means sales have remained under pressure despite a strong Black Friday week.
This dented profit by around £11m in November and the group expects a potentially similar profit impact in December if trading conditions don't improve.
Superdry highlighted 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.
"Reflecting those impacts and the uncertainty in the remainder of the financial year the company expects underlying profit before tax to be in the range of £55m to £70m." This compares to consensus expectations of £84m.
Chief executive officer Euan Sutherland said: "Superdry had a difficult first half, impacted by unseasonably warm weather across our major markets, a consumer economy that is increasingly discount driven and the issues we are addressing in product mix and range.
"In the spring of this year we started an 18-month product innovation and diversification programme. This will increase choice for consumers around the world and address the current over-reliance on jackets and sweats. We are accelerating into new categories and are particularly excited by the upcoming launch of Superdry Kids. At the same time we are evolving the brand through targeted investment. In everything we do we will build on Superdry's heritage of offering exceptional quality and design detail at outstanding value."
At 0810 GMT, the shares were down 19.5% to 458.50p.
Russ Mould, investment director at AJ Bell, said: "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."
RBC Capital Markets said that despite significant contraction in Superdry’s share price in recent months and year-to-date, the consensus earnings downgrades will be unhelpful for sentiment.
"We do not yet believe we have found the floor given management’s inability to stabilise deteriorating financial performance," said analyst Piral Dadhania.
"In the near term, the stock is under pressure on challenging top-line trends (part cyclical, part structural), with an unbalanced product mix, inventory rebase overhang and inventory file consolidation (wholesale into retail/online) which creates additional execution risk in our view. Given the number of stores in the portfolio, negative retail LFLs are expected to drive operational deleverage in our view, for which the outlook remains uncertain.
"Longer term, we view Superdry as an interesting growth story, with multi-channel expansion opportunities led by e-commerce. Free cash flow is healthy and shareholder returns (potential special dividends every few years) remain attractive, assuming top line trends can be fixed.
"The public and ongoing battle for control by founders and majority shareholders Julian Dunkerton and James Holder, who are unhappy with the strategic direction of the current leadership team is not helpful, and unlikely to resolve in the near term."
Liberum, which rates the stock at 'hold', slashed its price target to 475p from 700p as it said the results are "disappointing", missing consensus by 5%.
"We have already cut our FY19E forecast by 30% year-to-date and today's results, with a new guidance profit before tax range of £55-70m suggests another 28% cut at the midpoint.
"The group's ongoing significant underperformance versus its potential, including its margin contraction, reflects more than just tough market conditions and weather impacts. In our view, it raises multiple key questions around the strategic shift that current management is persisting with. The shares are very cheap, but a change in thinking and action is required to harness the global opportunity."