Superdry in profit warning, stores could close as AW18 stays tough

By

Sandra Halliday

Published
Dec 12, 2018

Superdry is rarely out of the news these days and on Wednesday it grabbed the headlines with a profit warning for the full-year and interim results that included underlying pre-tax profit plummeting 49%. But the biggest news was that it’s “intensifying” its comprehensive transformation programme.

The 26 weeks to October 27 have been a "difficult trading period”, although global brand revenue still managed to rise 6.4% to £831.8m and group revenue was up 3.1% to £414.6m. Retail revenue was flat with e-tail up 6.9% but stores down 2.3%, while wholesale revenue rose 7.8%. As mentioned, the underlying profit figure plunged to £12.9m from £25.3m, but statutory pre-tax profit rose over 190% to £26.4m due to currency exchange benefits. Net profit rose nearly 156% to £20.2m.

Unfortunately, there was little other good news to be shared. The firm said “unseasonably warm weather has continued through November and into December” (its two biggest trading months in the year) across all of its key markets. “Given that its “reliance on cold weather-related product continues and a lack of innovation in some categories, sales have remained under pressure despite a strong performance in the Black Friday week,” it added.

That may have come as a surprise as a trading update only last month had said that the cooler weather that had now set in meant sales were more "typical" for the time of year.

The weak recent trading has resulted in “an adverse profit impact of around £11 million in November and the company expects a potentially similar profit impact in December if trading conditions do not improve.” It now expects underlying profit before tax to be in the range of £55 million to £70 million as a result.

TRANSFORMATION 

Clearly, something has to be done. Enter its transformation programme that had already begun earlier this year but is being ramped up. It now includes “reviews of the store portfolio and the cost structure of the company.” It’s mulling store closures, as well as “right-sizing, relocations and renegotiation of rent.”

And it’s aiming for a fundamental repositioning of product too with an “innovation and diversification programme to rebalance options across categories; re-energising core product with greater innovation; increasing participation from newer, fast-growing categories; [and] moving into untapped categories.”

That means launching kdswear for AW19 and development of its licensing programme with potential in beauty, footwear, watches, eyewear and accessories.

It also aims to strengthen its brand positioning and is looking at a “refreshed social media approach, underpinned by [a] campaigning stance.”

And it will accelerate investment in "capital light channels with a major spend on digital, despite an overall cut in capex.

Additionally, it sees “significant opportunities for wholesale-led growth in the US and China.

DIFFICULT FIRST HALF

So that’s the future but what actually happened in the first half? Was there any good news?

As mentioned, overall e-tail grew, underpinned by its own webstore growth of 14%. This channel now represents 26.9% of total retail sales. Another key development was its faster product drops and new lines such as its “disruptive fast-fashion limited edition Preview range.” 

And while it’s mulling store closures, it also continued to open them globally with a key step forward being 20 new franchise locations opened in development market China. It now has 35 franchise locations there, alongside 20 owned stores. It has seen brand revenue in this market nearly double year-on-year.

North America, where it now has 31 owned stores and more than 400 wholesale accounts, is key too. It’s accelerating its capital light expansion there and saw full-price wholesale revenues growth of 39% in H1 from its partnerships with its key accounts and independent retailers.

And it saw the launch of several major campaigns and activity “which together generated reach of 1.3bn.” A key driver of this was its partnership with the Invictus Games Foundation and its role as Official Sportswear partner for Team UK. This campaign alone generated over 1bn views, introducing new customers to the brand.