Having re-joined the board just five weeks ago Superdry’s (SDRY) interim chief executive and co-founder Julian Dunkerton (pictured below) has already implemented plans to turn the fashion retailer’s weak performance round.
Yet the pain this process will cause investors is made all the more plain with today’s pre-close trading update. Covering the fourth quarter and full year to 27 April, includes yet another profit warning from the British brand and highlights the scale of the challenge the charismatic Dunkerton faces in reinvigorating Superdry.
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STRAIGHT BACK TO BUSINESS
Fresh from his narrow boardroom victory last month, which saw him return to the company alongside new chairman Peter Williams, Dunkerton reports flat year-on-year group revenue alongside a 4.5% sales decline in the fourth quarter. While Superdry did see an improved own store performance in the final quarter, Dunkerton is forced to lower previous management’s annual earnings guidance nonetheless.
He expects underlying pre-tax profit to be below consensus market expectations of £54.1m-to-£59.4m due to a weak recent wholesale and e-commerce performance ‘along with other measures to deliver the new operational strategy’.
Fourth quarter wholesale revenue was impacted by higher returns, lower than expected in-season orders and decisions not to ship to customers that had reached their credit limits, while the e-commerce showing was similarly poor due to a reduction in discounting year-on-year.
The news doesn’t come as any real surprise to Superdry watchers and the shares tick up 1.5% to 487.6p on hopes Dunkerton can reverse the company’s faltering fortunes; a more detailed update on strategy is pencilled in for the full year results (4 Jul).
STABILISING THE SITUATION
Very excited about being back in the business, passionate Remainer Dunkerton concedes ‘there’s a lot to do, but after five weeks, I am more confident than ever that we can restore Superdry to being the design led business with strong brand identity I know it can be.
‘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. The impact of the changes we are making will take time to come through in the numbers but I’m confident we are heading in the right direction.’
WHAT THE EXPERTS ARE SAYING
According to Shore Capital, ‘the focus in the last month has been addressing product ranges and improving the online proposition. There remains much to do to restore the Superdry brand to be a growth story again. It is perhaps not a surprise to see the new management team lowering the previous regime’s profit guidance and all eyes will be on the forthcoming preliminary results for the new management team to articulate the strategic direction, targets and milestones to deliver sustainable growth.’
Kate Heseltine, analyst at Edison Investment Research, remarks:
‘Whilst it may be too soon for the recent major boardroom reshuffle at Superdry to have any meaningful impact on financial results, the company’s pre-close update makes very clear that change is underway.
‘Since re-joining the board five weeks ago Julian Dunkerton has already implemented plans to increase the options available to customers shopping online and stock densities in selected flagship stores, reduce unnecessary promotional activity and introduce 500 new products over the next six months whilst continuing with a comprehensive programme to deliver £50+ of cost savings by 2022.’
Russ Mould, investment director at AJ Bell, argues that the latest profit warning ‘is a stark reminder about the scale of the problems facing the business and the mountain Dunkerton has to climb to get it back on track.’
‘There is no point him having an aggressive profit target at the moment given the radical changes planned for the business. Stability is at the top of the agenda with earnings growth down the line once everything is in the right position.’
‘His priority is to improve the online offering, put more stock into the best stores, cut discounting and introduce new products.’
‘Dunkerton will probably have a good six months’ grace period in order to get the business in shape and start executing on plans before the market starts to truly judge his performance. Until then it is likely to be a choppy period for the retailer.’
