Superdry sees long road to recovery, denies new boardroom rift

FILE PHOTO: A woman walks past a Superdry fashion store in Berlin
FILE PHOTO: A woman walks past a Superdry fashion store in Berlin, Germany, March 17, 2016. REUTERS/Fabrizio Bensch/File Photo

July 10, 2019

By James Davey

LONDON (Reuters) – The founder of Superdry <SDRY.L> warned the revival of the struggling British fashion group would be a long haul after a 130 million pound ($161 million) charge for poorly performing stores pushed it into an annual loss, kicking its shares down.

Julian Dunkerton, the group’s biggest shareholder with an 18.4% stake, won an acrimonious battle to rejoin the board in April, prompting the existing directors, including chief executive Euan Sutherland, to resign en masse.

He returned as interim chief executive but there is uncertainty over how long he will stay in that post before shifting to a role in charge of product design.

Dunkerton and new chairman Peter Williams on Wednesday dismissed a newspaper report of a rift between them over his tenure, saying they were working well together.

“We are aligned on the future,” Dunkerton told reporters, saying he was totally focused on turning the business around.

“The issues in the business will not be resolved overnight,” he said.

Williams said that while Superdry had hired a headhunter, a specification of requirements for the job was yet to be drawn up, let alone a candidates short list.

Dunkerton’s return followed a string of profit warnings as the retailer struggled to expand beyond its sweatshirts, hoodies and jackets with random Japanese text and as demand fell in its wholesale and ecommerce business.

Shares in the group fell as much as 11% on Wednesday, extending losses over the last year to 67%, after it forecast a slight decline in group revenue in 2019-20 and only a “modest” increase in profitability on an underlying basis, prompting analysts to cut forecasts again.

“We expect our financial performance in (2019-20) to reflect market conditions and the historic issues inherited,” Superdry said.

Analysts at Peel Hunt cut their current year forecast for pretax profit on an underlying basis by 10 million pounds to 46 million pounds.

“The key for us, is whether the new management team can stabilize demand for the core ranges and product lines,” they said.

HUGE POTENTIAL

Dunkerton’s initial focus has been on getting Superdry’s product ranges right and improving its e-commerce proposition, where he sees “huge potential”. He has increased the number of products sold online, put more stock into flagship stores and cut back promotions to improve profit margins.

The non-cash lease and impairment charges of 129.5 million pounds booked in the 2018-2019 accounts affect about half of Superdry’s 248 stores in Britain, Europe and the United States, and reflect decreasing store revenues and the firm’s cautious recovery plan.

Dunkerton said the group was reviewing its store estate but anticipated only a small number of closures.

“The reality is landlords want us in their centers or on their high streets,” he said.

He said Superdry still saw big opportunities in the United States and China but would be reviewing how it operates in both markets, such as scaling back U.S. warehousing space.

British retailers are facing a perfect storm of rising costs, uncertainty in the economy around Britain’s exit from the European Union and a structural shift online.

An industry survey published on Tuesday said sales at British retailers rose at their slowest average pace on record over the past year.

Superdry made a statutory pretax loss of 85.4 million pounds for the year to April 27 versus a profit of 65.3 million pounds in 2017-18.

On an underlying basis, pretax profit slumped 57% to 41.9 million pounds – at the bottom of the range of analysts’ forecasts that have been downgraded after the warnings. Group revenue was flat at 872 million pounds. The final dividend was 2.2 pence, down 90%.

The numbers relate almost entirely to the period before Dunkerton returned.

(Reporting by James Davey; editing by Kate Holton and Emelia Sithole-Matarise)