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Superdry warns on profits after disappointing Christmas trading
10th Jan 2020 07:56
(Sharecast News) - Clothing retailer Superdry warned on Friday that full-year profits could be wiped out after a disappointing performance over the Christmas period.
In an update for the 10 weeks to 4 January, the company said that despite a strong Black Friday event, its peak trading performance was lower than expected as it continues its "strategic transition to a full price stance".
Superdry pointed to unprecedented levels of promotional activity and subdued consumer demand immediately after Christmas.
"These factors, combined with shortages of some better-selling product, driven by the need to reduce our inherited inventory position, adversely impacted our sales during peak trading," it said.
While it has been encouraged by initial customer reaction to the limited amounts of the new management team's Autumn/Winter 2019 stock, this has not been sufficient to offset weaker trading on older product, it said.
Superdry said it generated lower-than-expected retail sales of £23m since Black Friday, predominantly online. In addition, the group's wholesale performance was hit by "certain timing issues" that caused a £5m shortfall. This will partially reverse over the year, however.
Over the 10 week period, group revenue slumped 15.8%, with store revenue 18.5% lower, wholesale 16.9% weaker and e-commerce sales down 9.3%.
As a result, the company now expects full-year underlying pre-tax profit of zero to £10m.
Chief executive officer Julian Dunkerton said: "Everyone at Superdry continues to work intensively to deliver the turnaround of the business. While we have always said it will take time, we continue to make progress in implementing our strategy.
"A key element of this is to focus on and return to full price sales and reduce promotional activity, and we halved the proportion of discounted sales over our peak trading period, benefitting both our margins and the Superdry brand. However this adversely affected our sales during the peak trading period given the level of promotional activity in the market."
At 0930 GMT, the shares were down 16.5% at 394p.
Neil Wilson, chief market analyst at Markets.com, said: "As we noted with Marks and Spencer, discounting is murder if you don't have the brand power to avoid it.
"The numbers are woeful," he said, adding that Dunkerton has an awful lot of work to do.
"Does the full price strategy actually have legs? Sales are being hammered - margin gains may be for nought," he said.
Russ Mould, investment director at AJ Bell, said: "Co-founder Julian Dunkerton's return to Superdry as CEO is starting to look like a difficult second album rather than an overnight success.
"A dodgy Christmas trading period means there may now be no profit at all in the current financial year. The weak performance partly blamed on old stock. Although this will come as a big disappointment to shareholders, Dunkerton looks to be taking a long-term view of the business.
"Reducing discounts may have hurt sales amid strong industry competition but this could be a price worth paying if it helps rebuild the integrity of the brand and improves margins. Slashing prices can damage shoppers' perception of a brand or product and it can then be difficult to return to a higher price tag in the future.
"This is a high-wire act for Dunkerton though, as it relies on the patience of shareholders and there is a risk the brand just doesn't have the same cachet it once did. After nine months in charge, and after a lengthy campaign to oust the previous management, there will be increasing pressure on him from the market to deliver tangible signs of progress as we move through 2020."
In an update for the 10 weeks to 4 January, the company said that despite a strong Black Friday event, its peak trading performance was lower than expected as it continues its "strategic transition to a full price stance".
Superdry pointed to unprecedented levels of promotional activity and subdued consumer demand immediately after Christmas.
"These factors, combined with shortages of some better-selling product, driven by the need to reduce our inherited inventory position, adversely impacted our sales during peak trading," it said.
While it has been encouraged by initial customer reaction to the limited amounts of the new management team's Autumn/Winter 2019 stock, this has not been sufficient to offset weaker trading on older product, it said.
Superdry said it generated lower-than-expected retail sales of £23m since Black Friday, predominantly online. In addition, the group's wholesale performance was hit by "certain timing issues" that caused a £5m shortfall. This will partially reverse over the year, however.
Over the 10 week period, group revenue slumped 15.8%, with store revenue 18.5% lower, wholesale 16.9% weaker and e-commerce sales down 9.3%.
As a result, the company now expects full-year underlying pre-tax profit of zero to £10m.
Chief executive officer Julian Dunkerton said: "Everyone at Superdry continues to work intensively to deliver the turnaround of the business. While we have always said it will take time, we continue to make progress in implementing our strategy.
"A key element of this is to focus on and return to full price sales and reduce promotional activity, and we halved the proportion of discounted sales over our peak trading period, benefitting both our margins and the Superdry brand. However this adversely affected our sales during the peak trading period given the level of promotional activity in the market."
At 0930 GMT, the shares were down 16.5% at 394p.
Neil Wilson, chief market analyst at Markets.com, said: "As we noted with Marks and Spencer, discounting is murder if you don't have the brand power to avoid it.
"The numbers are woeful," he said, adding that Dunkerton has an awful lot of work to do.
"Does the full price strategy actually have legs? Sales are being hammered - margin gains may be for nought," he said.
Russ Mould, investment director at AJ Bell, said: "Co-founder Julian Dunkerton's return to Superdry as CEO is starting to look like a difficult second album rather than an overnight success.
"A dodgy Christmas trading period means there may now be no profit at all in the current financial year. The weak performance partly blamed on old stock. Although this will come as a big disappointment to shareholders, Dunkerton looks to be taking a long-term view of the business.
"Reducing discounts may have hurt sales amid strong industry competition but this could be a price worth paying if it helps rebuild the integrity of the brand and improves margins. Slashing prices can damage shoppers' perception of a brand or product and it can then be difficult to return to a higher price tag in the future.
"This is a high-wire act for Dunkerton though, as it relies on the patience of shareholders and there is a risk the brand just doesn't have the same cachet it once did. After nine months in charge, and after a lengthy campaign to oust the previous management, there will be increasing pressure on him from the market to deliver tangible signs of progress as we move through 2020."