Fashion retailer Superdry (SDRY) rallied 18% to 139.1p on Monday following news the premium clothing brand traded ahead of management’s initial expectations in the first quarter. There was also relief that a new £70 million lending facility has been secured, easing the pressure on the company's balance sheet as it deals with the fallout of the coronavirus crisis.
Guided by charismatic co-founder and chief executive Julian Dunkerton (pictured below), who re-took control of the company last year, Superdry insisted this new financing facility combined with a strong net cash position ‘gives us the necessary flexibility and liquidity going forward’.
FIRST QUARTER BEAT
‘Current trading in Q1 has been better than our initial expectations,’ said the t-shirts, hoodies and jackets seller, renowned for signature products adorned with Japanese text.
Nevertheless, the Cheltenham-headquartered company conceded disruption from Covid-19 ‘continues to materially impact our performance year on year’.
For the 13 weeks to 25 July, total revenue fell 24.1%, largely due to the impact of pandemic driven store closures.
Around 95% of Superdry’s stores have now re-opened, although store revenue still dropped by 58.1% in the first quarter, equivalent to a 32.3% decline on a like-for-like basis.
Unsurprisingly, wholesale revenue was down 31%, but Superdry’s online business, a bright spot during the lockdown, has continued to perform well.
E-commerce sales surged 93.2% in the first quarter, albeit digital growth has normalised in recent weeks with brick and mortar stores now open for business.
SIGNIFICANT LIQUIDITY
Today’s second significant update was the news Superdry has agreed a new £70 million Asset Backed Lending Facility (ABL Facility) with existing lenders HSBC and BNPP.
This replaces the existing facility the hard-pressed fashion brand had in place, which was due to expire in January 2022.
Investors also welcomed the news Superdry had £57.8 million of net cash in the coffers as of 6 August. That was up from the £39.8 million of net cash reported on 7 May.
This strong balance sheet position largely reflects ‘the significant and decisive management actions taken to preserve cash ahead of our working capital trough in October’.
Liberum Capital explained the new bank facility ‘provides significant liquidity’ and said Superdry has ‘managed cash flow very well’.
Dunkerton commented: ‘The actions we have taken to date have greatly strengthened our cash position, which together with our new ABL Facility, give us the flexibility to execute our current plans and to secure our recovery.’
THE EXPERTS’ VIEW
Liberum Capital believes: ‘There is significant recovery opportunity ahead with Autumn/Winter 2020 where new product and ranges not only look very promising but could provide a step-change in trading performance across the group.’
Russ Mould, investment director at AJ Bell, commented: ‘While the big falls in revenue over recent months would largely have been expected there was some good news this morning as the firm secured some breathing space with its fresh asset-backed lending facility.
‘The strong web-based sales, while a natural offshoot of lockdown, at least suggest that this part of the business is operating as it should and able to respond to a rapid increase in demand in timely fashion.’
Yet with the immediate issue of survival seemingly addressed for now, Mould said ‘attention will turn back to Dunkerton’s efforts to restore the brand’s appeal and credibility among shoppers. The fear for shareholders is that its traditional customer base may just have tired of its faux-Japanese stylings and moved on.
‘Dunkerton will have to demonstrate to the market that there is some light at the end of the tunnel as he looks to set the business on an upwards trajectory or investors may run out of patience.’
