Superdry shares blasted amid slew of bad news

by Graeme Evans from interactive investor |

Littered with grim news, these annual results are not for the fainthearted. Neither is the share price.

The challenge of reviving the once mighty Superdry (LSE:SDRY) brand hit home with investors today as founder Julian Dunkerton warned there would be no overnight fix to its problems.

The interim chief executive, who returned to the fashion chain in acrimonious circumstances in early April, admitted in annual results that it will take time to get the business back to the design-led roots that made it such a success at the start of this decade.

His caution was reflected in today's share price performance, with the former FTSE 250 index stock down as much as 10% Wednesday to levels not seen since the end of 2018. After an initial burst of optimism following Dunkerton's return, shares have ebbed away in recent weeks amid the reality of trying to compete in a fast-changing market now dominated by the likes of ASOS (LSE:ASC) and Boohoo (LSE:BOO).

At least today's delayed annual results mean the new Superdry management team can finally draw a line under the miserable events of the past few weeks and months. Underlying profits of £41.9 million for the year to April 27 were at the lower end of guidance, despite having been downgraded on three occasions in the past year.

A bottom-line loss of £85.4 million also reflected non-cash lease and impairment charges of £129.5 million relating to about half of the owned retail estate. Year-end cash of £35.9 million was lower than expected, but still able to support a much-reduced final dividend of 2.2p a share.

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

Attention now switches from the boardroom to the design studio as Dunkerton and his team attempt to restore Superdry's fashion credentials and re-ignite the "brand DNA" through consumer engagement and social media. 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.

But given the long lead times needed to rework the product portfolio, it's unlikely that initiatives will bear fruit until Jan/Feb 2020 in wholesale and autumn 2021 in retail. This means group revenues are expected to show a small decline in the current financial year, particularly in the first half. A "year of reset" will also be needed to manage further legacy matters.

Dunkerton said: "The issues in the business will not be resolved overnight. My first priority on returning to Superdry has been to steady the ship and get the culture of the business back to the one which drove its original success."

Investors still on board at Superdry must be hoping that Dunkerton's conservative guidance heightens the potential for an upside surprise later on. Analysts at Peel Hunt and UBS are remaining cautious for the timebeing, with both reiterating hold stances on a stock currently trading at around 10 times future earnings.

Longer-term, Dunkerton aims to restore double-digit earnings margins and rebuild profitability over a three-year time frame. The store estate is likely to remain a key part of this strategy, given the advantages that this can offer over pure e-commerce retailers.

The website is also in the process of being re-designed while Superdry re-balances its capital investment towards online channels in order to tap into the "huge digital potential" of the brand.

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