Shares in UK clothing retailer Superdry were down by almost 4% this morning (10 July) as the company moved to a full-year loss and interim-CEO Julian Dunkerton warned the issues in the business will not be resolved overnight.
In a trading update for the 52 weeks to 27 April, Superdry swung to a full-year statutory loss before tax of GBP85.4m (US$106.6m), versus a prior-year profit of GBP65.3m. Full-year underlying profit before tax of GBP41.9m was less than half the GBP97m booked a year earlier.
In May, Superdry warned it expected full-year underlying profit to be below market expectations following a “poor” wholesale and e-commerce performance in the fourth quarter.
Group revenue, meanwhile, was flat on the prior year, with a first-half performance benefiting from discounting and space growth followed by poor performance in the second half across all channels.
Gross margin fell by 250bps to 55.6% from 58.1% in 2018, reflecting increased discounting in the retail channel together with the impact of comparative growth in its relatively lower margin wholesale operation. Gross margin benefitted from a 50bps foreign exchange tailwind year-on-year, driven by the timing of US dollar denominated purchases for the spring/summer 2018 season.
“The issues in the business will not be resolved overnight,” says founder Dunkerton, who returned to the company in April. “My first priority on returning to Superdry has been to steady the ship and get the culture of the business back to the one which drove its original success. All the team in Superdry are working incredibly hard to deliver the direction set out, with a real focus on returning the business to its design-led roots and getting the retail basics right.
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By GlobalData“Although we are only three months in, our initiatives are gaining some early traction, and I am confident we are doing the right things to ensure that over time Superdry will return to strong profitable growth.”
Chairman Peter Williams adds: “These are clearly a very disappointing set of results. However, everything I have learnt since joining the business in April has reinforced my view that Superdry is a powerful brand with great people across the organisation. While we have been clear it is going to take time, I remain convinced that continuing to work closely with Julian and the leadership team, we are building the right plan to deliver long-term sustainable growth for shareholders.”
Looking ahead, Superdry says it expects global retail markets to remain highly competitive, with the consumer outlook continuing to be uncertain, especially around the impact of Brexit.
“Given the scale of the trading downturn in FY19 and the lead times required to rectify the product range and proposition, management view FY20 as a year of reset, creating a platform from which Superdry can return to long-term profitable growth. We expect our financial performance in FY20 to reflect market conditions and the historic issues inherited,” the retailer says.
As a result, group revenue is expected to show a slight decline in FY20, particularly in the first half, as Superdry rebalances promotional activity and strengthens the brand.
“Disappointing results”
James Yacoub, retail analyst at GlobalData, says: “Disappointing results have been spurred on by a poor performance in the second half, which Superdry has put down to the unimaginative excuse of a “difficult retail climate”.
“Of course this may have been convincing had competitors experienced similar misfortunes, however, this has not been the case for those innovating and who are in tune with customers, with online pureplay Boohoo achieving exponential revenue growth of 47.8% while sports and athleisure retailer JD Sports achieved 49.2% revenue growth over the same financial period.”
He adds: “Superdry is suffering from deep rooted issues relating to its inability to remain relevant and ultimately differentiate itself from more nimble, innovative and the latest lifestyle brands.”
Yacoub also believes Dunkerton’s plans to “bring back design excellence, reset store profitability and to build a cohesive team to stabilise the business, are rather vague and have not instilled any real confidence in investors, as Superdry’s share price continues to tumble.
“Superdry must find a way to breathe new life into its brand, it must define and capture its target audience through effective social media campaigns and ensure that it is resistant to changes in fashion and seasonal trends. Ultimately Dunkerton must futureproof the business by expanding its design range to appeal to a wider target segment and also innovate to maintain customer loyalty and increase engagement.”
