Lately out-of-favour, fashion seller Superdry (SDRY) rallies 10.3% to £12.89 as the Cheltenham-headquartered premium clothing brand announces its second special dividend in two years.

This news comes alongside a third successive year of double-digit sales and underlying profit before tax (PBT) growth.

Given the challenged consumer backdrop, there’s relief as Superdry leaves its 2019 sales and operating margin expansion guidance intact, with the news store trading has improved since year-end being taken very positively indeed.

HUG A HOODIE (SELLER)

Shares in the Superdry-branded t-shirts, hoodies and jackets seller had sold off on worries over declining retail like-for-like sales, particularly in the second half of the financial year ended 28 April, with Superdry reporting a 6% weather-impacted drop in fourth quarter (Q4) store revenues.

In May’s pre-close update, Superdry also flagged downwards pressure on gross margins reflecting strong growth in relatively lower margin wholesale revenue and planned stock clearance activity.

An all-round challenging consumer backdrop and the departure of key founder and creative force Julian Dunkerton in March also unsettled investors, so today’s positive full year results are triggering a relief rally in the stock.

Reassuringly, Superdry is sticking with current year guidance for high single digit top-line growth, driven by the rapidly growing and capital light wholesale and ecommerce channels rather than physical stores, and for moderate expansion in operating margin aided by efficiencies and a turnaround in its North America business.

Underpinned by continued strong cash generation and an increased year-end net cash pile of £75.8m (2017: £65.4m), Superdry not only lifts the full year ordinary dividend 11.4% to 31.2p, it also declares a 25p special dividend.

‘Whilst the consumer environment continues to be challenging, the board remain confident that Superdry is a uniquely advantaged, highly cash-generative business that will continue to deliver sustainable growth for our investors,’ insists estimable CEO Euan Sutherland.

‘This confidence is demonstrated through our second special dividend in two years of 25p per share in addition to an 11.4% increase in the total ordinary dividend.’

Broker Liberum Capital explains ‘the reiteration of guidance suggests to us some improvement in the trend for store-only, which declined 6% in Q4, which while reflecting sequential declines across the year was likely exacerbated by the adverse weather.’

GLOBAL BRAND ALLURE

Superdry’s full year results confirm this is very much an international growth story. Global brand revenue shot up 22.1% to £1.6bn last year with growth in all key territories, while underlying profit before tax rose 11.5% to £97m.

Sutherland adds: ‘Superdry has had another strong year, enhancing our position as a Global Digital Brand with a multi-channel approach. Our focus remains on executing our growth strategy and realising the potential we have identified across products, geographies and channels. In Superdry we have a brand that stands for quality, design, value for money and relentless innovation.’

THE ANALYSTS’ VIEW

Maintaining its ‘buy’ rating, yet increasing its price target from £13.50 to £14, Liberum stresses ‘today’s results do provide incremental positives in our view, including the reiteration of full year 2019 guidance which suggests some improvement in store-only revenue trends from the tough Q4 18 previously reported. Additionally, the rebalancing towards capital light channels with space growth guidance reduced, is a positive strategic development in the current retail environment and structural shifts.’

Meanwhile Russ Mould, investment director at AJ Bell, comments: ‘The British retailer looks to have stabilised following a shock in May where it reported a slowdown in sales growth. At the time, it also flagged that margins were falling due in part to a decision to cut prices to lower the amount of stock being held.’

‘There will be some relief that its 2019 financial year revenue and margin guidance hasn’t been downgraded from previous guidance,’ says Mould.

‘It continues to be a very difficult market for retailers but Superdry is managing to navigate the bumps in the road and is still able to grow revenue and underlying profit, plus generate enough cash to warrant growing the dividend and paying an extra special dividend on top to its shareholders.’

‘Its decision to reduce guidance for space growth looks sensible in light of the market conditions, plus it also seems wise to tighten focus on wholesale and e-commerce channels as these require less capital spending.’

---