Retailer Superdry has pointed to “unseasonably warm weather” and a “lack of innovation in some core categories” for a failure to deliver on profits during the first half of 2019 – prompting a 33% dive in its share price this morning (12 December).
However, the retailer has insisted it is addressing the issues, with its structure and supply chain set to undergo scrutiny in the coming months.
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For the 26 weeks ended 27 October, underlying profit before tax – that is before considering exceptional items and foreign exchange impacts – was down 49% against the same period last year to GBP12.9m (US$6.2m). Underlying operating profit similarly tumbled 44.8% to GBP14.9m.
Group sales grew 3% to GBP414.6m on the back of wholesale and e-commerce growth, but were offset by a revenue decline in retail stores. Superdry said sales were impacted by “unseasonably warm weather through November and December” in all of its key markets, given its reliance on cold weather-related products. It also blamed a lack of innovation in some core categories for pressure on sales.
Superdry added it expected a similar profit impact in December should trading conditions not improve and, with “considerable uncertainty” in consumer behaviour, the impact of economic and political issues, it expects underlying profit before tax to be in the range of GBP55m to GBP70m.
Amy Higginbotham, retail analyst at Global Data however, says Superdry’s problems go beyond unfavourable weather. “Superdry is failing to capitalise on the athleisure boom which is helping drive sales at competitors, such as JD Sports…Superdry also struggles to compete with trend-led clothing specialists including Topshop and Asos, which now sell athleisure products at lower prices, encouraging consumers to trade down.”
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By GlobalDataRichard Stables, CEO of Kelkoo concurred: “Superdry ignores the key factor that has resulted in weaker profits – a failure to embrace ecommerce and offer online shoppers an attractive user experience. Many retailers are struggling to maintain an expensive property portfolio whilst developing an innovative online offering that can keep pace with the major online players.”
However, the group assures it is on track to address the challenges presented in the first half: “Our focus is on re-energising and evolving the brand, a process that started in April 2018.”
“In the spring of this year we started an 18-month product innovation and diversification programme,” notes Euan Sutherland, Superdry CEO, adding: “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.
“Superdry is a strong brand and has strong operational capabilities. We are focused on an intensified transformation programme to reset the business and address the legacy issues we face, particularly in product mix and range.”
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The group plans to enter the childrenswear segment with Superdry Kidswear in 2019.
Together with this, it will roll out its first ever 100% organic cotton products, with the aim to be fully organic in cotton by 2040. Superdry is also exploring a “global margin opportunity” in licensing in beauty, footwear watches, eyewear and accessories.
Given the strength of its wholesale division, it will continue to focus on growing this area, pointing to significant opportunities in in the US and China, delivering annual global brand revenue value of GBP400m by FY22.
In addition, the group is looking at leaning further on digital and will focus on investment in this area to drive incremental efficiency. It will continue its investment into the growth of owned, B2B and partner e-commerce sites to service new markets and customer-centric mobile platforms too.
Supply chain and sourcing are set to undergo a shake-up. Superdry says it will accelerate sourcing from “lower-cost same quality” Chinese producers. It also plans to benefit on efficiency savings through automation.
It is rolling out an efficiency programme under which it is eyeing gross cost savings of at least GBP50m by FY22. This will involve a comprehensive cost efficiency review and a review of its flexible store portfolio to consider closures, right-sizing, relocations and renegotiation of rent, to be completed by March 2019.
“Superdry is responding to its internal challenges as well as a changing world and changing consumers,” adds Sutherland. “Our comprehensive transformation will ensure Superdry is well positioned as we optimise our routes to market and make our business more efficient. We are confident that our transformation programme combined with the underlying operational strengths of the business will deliver a return to higher levels of growth and profitability while realising geographic expansion opportunities and leveraging our multi-channel operating model to serve customers in whichever way suits them best.”
Higginbotham however, is yet to be convinced the steps outlined by the group are enough to bring it back on track.
“Superdry must take action to ensure it is more resilient to the challenges facing the high street. Although the retailer is in the midst of an 18-month plan to broaden its range and become less reliant on winter products, it must do more to remain relevant. The retailer should partner with celebrity influencers, as it has done in the past with David Beckham and Zac Efron, to engage its core consumer group once again. Superdry should also better promote its specialist credentials and premium ranges to help justify its price points which are higher than those offered by midmarket clothing specialists.”
