Superdry; profit warning

Superdry (SDRY.L FTSE Mid 250, Market capitalisation: £832m, 1015p, 2.1% of JIC Portfolio and 0% of JIC Top 10)

Profit warning from Superdry.

Conclusion: Drat! I guess the share price was telling me something. The CEO puts the best gloss on it he can but there is no escaping the fact that unless the weather turns more seasonal soon there is the risk of further profit warnings. There might also be a suspicion that the weather is being used as an excuse for other short falls in its product offering. We are talking about downgrades of around £23m on prior forecasts of £110m, so about 20%. The share price was looking cheap before today’s downgrades and back of the envelope calculations suggest that at the current share price of 1015p, the shares are now on about 12.0x April 2019 estimates for earnings per share which will be flat on last year. The balance sheet looks strong and cash flow okay. The dividend should at least be in line with last year, giving a prospective yield of 3.1%. That’s all a little academic as the share price will be hit hard this morning and given concerns about trading in the next few months is unlikely to receive much support. If I could sell early I would but I suspect the share price will open down 20% or so. The only factor that might help a little is that expectations were clearly low. At 2.1% it is also my second smallest position.  I will wait for the dust to settle, see what happens to forecasts and then decide my course of action 

Superdry‚Äôs year end is April. It says that the hot summer and autumn, (so far) has significantly affected demand for autumn/winter product, particularly¬†sweats and jackets, which account for around 45% of Superdry’s annual sales.This is expected to adversely impact profits for the year ending 30thApril 2019 by ¬£10m.

It goes on to say that ‚Äúhistoric foreign exchange hedging mechanisms that Superdry had put in place have not provided the same degree of protection as expected. This will lead to around ¬£8m in additional foreign exchange costs, split evenly over the financial year.‚ÄĚ

It says that it is five months into its 18 month programme to broaden its product base and becoming less reliant on ‚Äúheavier weight‚ÄĚ product. New areas of focus include dresses, skirts, women‚Äôs tops and premium sport and licensed product ranges.

In terms of the expected first-half sales outturn, the Company currently expects to report:

·      Mid-single digit global brand revenue growth;
·      Low to mid-single digit statutory revenue growth;
·      Mid-single digit Ecommerce revenue growth with owned sites expected to deliver low-teens digit revenue growth;
·      High-single digit Wholesale revenue growth with full-year revenue growth also expected to be high-single digit; and
·      Low-single digit owned store revenue decline.

Superdry normally delivers 70-75% of full year profits during the second half, starting November 1st. It says that during the ‚Äúsmall number of cooler days in September, Superdry saw strong year-on-year performances, particularly from its cold weather product categories as footfall increased.‚ÄĚ

Lastly, it reminds us ‚Äúthat global consumer behaviour is changing at an ever faster rate‚ÄĚ and anticipates making ¬£5m of accelerated investments¬†during H2 2018/19 in brand communication, digitisation and automation.

“Superdry is a strong brand with significant growth opportunities, backed by robust operational capabilities, but we are not immune to the challenges presented by this extraordinary period of unseasonably hot weather. We are well prepared for peak trading, but the second half of financial year 2019 presents both risks and opportunities.

“We continue to focus on delivering efficiencies and cost savings to meet the current challenges and have confidence in our strategy for growth and so are accelerating investments in our future. There are significant opportunities ahead for Superdry in terms of geographical market expansion, category extensions and growth and the ability to leverage its multi-channel operating model in a digital world to deliver to customers in whichever way suits them best.”

Screen Shot 2018-10-15 at 07.44.52