Not a good start for SuperGroup’s new chief executive Euan Sutherland - even though as an ex-Co-op boss he must be used to tackling tricky problems.
The company behind the Superdry fashion brand - beloved of the likes of Kate Winslet and David Beckham - has seen its shares slump around 9% after a profit warning.
In an unscheduled statement it said profits would be below expectations because warm autumn weather had hit demand for winter clothes. This follows a similar warning from Next earlier this week.
And it contrasts with early September when SuperGroup said autumn sales had got off to a flying start. Now it admits:
After a strong start to the quarter, September and October have both seen an exceptional period of warm weather across the UK and the rest of Europe which is expected to continue into November.
This has resulted in a high degree of uncertainty around the future performance of the autumn/winter ranger, particularly outerwear which is a significant part of the Superdry product mix.
So with high level of discounting and investments in infrastructure, the company was more cautious on the second half which generates up to 80% of its profits.
It now expects full year profit to be between £60m and £65m compared to expectations of up to £73m. Total sales for the 13 weeks to this week were up 11.4% including new shops, but down 4.2% on a like for like basis.
SuperGroup’s shares have slumped 74p to 811p on the news. Freddie George at Cantor Fitzgerald cut his target price from £15 to £10, but kept his buy rating. He said:
Second half Retail sales were broadly in-line with market expectations, but the Wholesale sales were a ‘big miss’ and very disappointing. They were impacted by customers staggering deliveries in light of the mild weather.
For the second half, we are concerned that the company, which now does not have any material gaps in the categories, will not have any ‘mega sellers’ in the third quarter as in previous years and will be impacted by a more discount driven market ahead of Christmas in response to the milder weather. In the meantime, we expect central overheads to have increased significantly.
We are still retaining our buy recommendation....the share price, however, might over-react to any negative news from the second quarter update because of perpetual concerns about the longevity of the brand. We continue to believe it was right for Julian Dunkerton, a genius on product, to channel the majority of his time into strengthening the ranges. The ranges may be less fashionable than in previous years, but they still retain a compelling mix of good quality competitively priced, practical leisurewear that appeals to all ages and these characteristics, in our view, give the brand longevity. Sales though might become more volatile as the company now needs, in our view, to manage a step change in product development. The launch of ski-wear and the rugby ranges to coincide with the Rugby World Cup will go some way in this journey. There remains also, we believe, a great opportunity to develop the business overseas.
Liberum was less positive:
SuperGroup has been hit recently anyway by the news that founder Julian Dunkerton is stepping aside from his position as chief executive [in favour of Sutherland] and the stock is likely to see further weakness today. With more bad news likely to come from Marks & Spencer interims next week, H&M the week after and Asos at the beginning of December we are likely to see more weakness in the sector so it is probably too early to be calling the bottom of this market just yet.
Canaccord Genuity said:
We have cut our price target to 900p (from a 1625p), based on a calendar 2015 estimated median sector PE rating of 14.2 times. With downgrades driven primarily by unhelpful weather, the brand’s international growth strategy remains intact in our view. We therefore retain our buy recommendation however in anticipation of an adverse market reaction to forecast downgrades.
