Did Superdry recovery begin today?

A series of profit warnings had sunk Superdry's share price, but an early slump proved too tempting.

Julian Dunkerton's mission to revive the glory days at Superdry (LSE:SDRY)received support in the City today when an inevitable profit warning was followed by a wave of buying.

The stock initially fell 6% but was later up 3% at 493p as investors digested the first trading update from Dunkerton since he returned to the chain in acrimonious fashion in early April.

The new interim chief executive, who helped to found the business in 1985, said he was "more confident than ever" that a new leadership team will be able to revive Superdry as a design-led business with strong brand identity.

He said: "My first priority has been to stabilise the situation, and all of us in the business are putting all our energy into getting the product ranges right and improving the e-commerce proposition, which are two important steps towards addressing Superdry's recent weak performance."

Dunkerton said steps taken in the past five weeks included greater stock density in flagship stores and the removal of unnecessary promotional activity in order to protect margins. Around 500 new products are also to be introduced over the first six months.

Further details of his strategy will be announced with full-year results on July 4. While today's update was far from the kitchen-sinking exercise that many new CEOs favour, Dunkerton still downgraded full-year forecasts.

Source: TradingView Past performance is not a guide to future performance

This reflected weakness in the wholesale and e-commerce divisions after quarterly revenues declines of 9.3% and 3.9% respectively. Store performance improved 2.2% in the quarter but was still 3.7% lower at £373 million across the financial year.

The wholesale arm's decline was partly driven by a decision not to ship to customers that had reached their credit limits. E-commerce was hit by the reduction of year-on-year discounting and removal of planned promotional activity at the end of the quarter.

Overall, the company now expects full-year profits will be below the range of current market
forecasts of between £54.1 million and £59.4 million. 

Analysts at UBS said a weak result was largely expected, although the scale of the top-line miss and likely spill over impact on the new financial year would worry markets.

This triggered today's short-lived fall in share price, although this later gave way to optimism amid hopes that Dunkerton can drive a turnaround in the brand's fortunes. At this early stage in the new regime, broker Peel Hunt reiterated its target price of 550p, Liberum upped its estimate to 500p from 400p and UBS held at the same level of 500p.

The shares are trading at around 9 times forecast earnings after a series of profit warnings led to a sharp decline in value since topping 2,000p at the start of 2018. The stock had been trading at 550p at the end of March, prior to mass resignations by Superdry directors in the wake of Dunkerton winning the backing of shareholders to return to the company.

He had been fiercely critical of the previous regime led by former B&Q boss Euan Sutherland, including the decision to launch a childrenswear range. Superdry employs 5,000 people and operates from 248 stores, with a further 486 franchised or licensed outlets.