Superdry sweats impact of hot summer and forex

15th Oct 2018 07:23

(Sharecast News) - Fashion brand Superdry said full year profits would be £23m lower than expected due to the hot summer weather and a mis-firing currency hedge.The FTSE 250 company said that firstly, the summer and autumn to date had seen unseasonably hot weather conditions in the UK, continental Europe and on the east coast of the US, which continued through into September and the first half of October and had significantly affected demand for autumn and winter product - particularly sweats and jackets - which account for around 45% of Superdry's annual sales.It said the effect of the weather conditions experienced in the first half of the financial year, when combined with the well-publicised challenges facing some of Superdry's trading partners, was expected to adversely impact profits for financial year 2019 by around £10m.Now five months into its 18-month product diversification and innovation programme to broaden choice for its global consumers, management said the programme was addressing its reliance on heavier-weight product with an acceleration of its expansion into categories such as dresses, skirts, women's tops and denim, and further extending into new market segments such as premium, sport and licensed product ranges. The intention is to maintain strength in its core categories (sweats, jackets and T-shirts) through a focus on "more relevant" innovation.Secondly, historic foreign exchange hedging mechanisms that Superdry had put in place had not provided the same degree of protection as expected, the company reported.That would lead to around £8m in additional foreign exchange costs, split evenly over the financial year.In terms of the expected first-half sales outturn, the company said it currently expected to report mid-single digit global brand revenue growth, low to mid-single digit statutory revenue growth, mid-single digit e-commerce 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.The board said the importance of Superdry's cold weather product categories and the normal profit cycle of its business - it usually delivers 70-75% of full-year profit during the second half of its financial year - meant that its full-year profit would be heavily influenced by its performance in the second half.In the small number of cooler days in September, Superdry apparently saw "strong" year-on-year performances, particularly from its cold weather product categories as footfall increased.The board added that, given global consumer behaviour was "changing at an ever faster rate", the company was continuing to invest in order to further drive growth.Directors anticipated making accelerated investments in the region of £5m in the second half of financial year 2019 in brand communication, digitisation and automation across the business, and product development.The investment in adapting stores "for a digital world", as it outlined at its preliminaries in July, also continued at pace."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," said chief executive Euan Sutherland."We are well prepared for peak trading, but the second half of financial year 2019 presents both risks and opportunities."Sutherland said the company continued to focus on delivering efficiencies and cost savings to meet the current challenges, with the board having confidence in its strategy for growth, are accelerating investments in its 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."Shares in the company fell 19% to 819.5p, their lowest since early 2015.Broker Peel Hunt said the £10m weather hit is "in keeping with what we have seen elsewhere" but the £8m hit from hedging losses and a further £5m downgrade from accelerating digital marketing initiatives in the second half were more surprising.Analysts downgraded 2019 forecast PBT by £25m to £87m and EPS to 84.9p and push through similar cuts to 2020 "to be prudent, despite the one off nature of the downgrades". "After this morning's share price fall, the stock has held onto its circa 10x PER. This still underplays the strength of the group's balance sheet and the global prospects, although investors will need to see an acceleration in performance over peak to re-instil confidence in execution."