SuperGroup has seen its shares come under pressure recently but they have rebounded following a positive trading update.
The company behind the Superdry brand said underlying half year profit had dipped from £13.5m to £13m, in line with expectations. It issued a profit warning in October following problems with a new warehousing system - which meant the wrong sized stock was sent to most of its stores. This has cost it around £8.8m, with £4m of this in the half year figures. Most of the issues have now been resolved. It said despite the tough environment, trading in the third quarter had shown an improved trend over the previous three months. Christmas of course will be key, and it has managed to get one floor of its flagship Regent Street store open ahead of the festive season.
SuperGroup's shares have jumped 51.5p to 554p, up more than 10%, but analysts still have mixed views on the business. Freddie George at Seymour Pierce kept his buy recommendation with a £10 price target:
The key drivers behind our recommendation are the following. 1) International remains the main priority of the group. 50 franchised stores should be opened in 2012 and two European owned outlets in the next eighteen months. 2) The impact of the Regent Street store should not be underestimated. It will most importantly enable management to further develop the assortment and the brand, which remains very much in vogue. 3) The company will, in our view, rightly take a more measured approach to expansion over the medium term.
Peter Smedley at Charles Stanley said:
Following the brutal fall particularly over the past three months ( down 55% relative to the FTSE AllShare), SuperGroup is now trading on a PE of just 9.4 times 2012 earnings falling to 7.4 times 2013 based on existing consensus numbers. Whilst these results suggest a double-digit earnings growth profile over the next two years is still very plausible, we think it will take several more quarters of flawless execution for SuperGroup to regain its previous premium valuation rating to the retail sector average.
But the sell notes are still out there. Sanjay Vidyarthi at Espirito Santo said its recommendation was under review:
First half profit of £13m was bang in line with our estimate, though we think the consensus range may have been broader (£8m to £20m). We don't expect a material change to consensus forecasts for this year (pretax profit of £54.8m) - we are on £56m. For next year, the pretax profit range is very wide at £60m to £90m. Given guidance on cost growth etc. we would expect this to start to narrrow downwards. We are on £62m. We expect the shares to show a relief rally today, given the recent sharp decline on the back of fears of more bad news on trading and the longevity of the brand.
Wayne Brown at Collins Stewart said:
Whilst the disclosure of like for like sales is a positive, we need to see underlying profit growth delivering a cycle of upgrades before we turn positive. We view the investment behind e-commerce and head office as necessary for the long term, but with the wholesale business yet to be integrated into the new distribution system, there could be more margin declines in the second half.
