SuperGroup is UK retail fashion victim of the year
Ken Odeluga December 11, 2014 4:17 PM
<p>SuperGroup’s snazzy ‘street-wear’ for twenty-somethings hasn’t flown off the shelves fast enough recently and its first-half profits tumbled 30%. It said summer ranges received a […]</p>
SuperGroup’s snazzy ‘street-wear’ for twenty-somethings hasn’t flown off the shelves fast enough recently and its first-half profits tumbled 30%.
It said summer ranges received a mixed reaction from shoppers, whilst disappointingly, SuperGroup is reiterating that the warm autumn hurt sales of winter items.
Underlying pre-tax profit in the six months to 25th October was £12.5m, a significant collapse from the first half a year ago, when the firm made £17.9m.
Revenues are an encouraging point with an 8.4% rise, though sales at stores open for more than a year fell 4.1%.
What may have saved the shares from the 9.5% drop they saw at the market’s open is the fact the firm is sticking to an outlook for full-year profit to be between £60m and £65m.
The shares are still more than 50% lower since hitting a three-year high of 1746p in March though, and all things considered, any material near-term recouping would not be justified by current fundamentals in my view.
Sticking with the weather story
Unfortunately, blaming a fall in demand for winter clothing (one of SuperGroups’s biggest categories is winter jackets) on the unseasonably warm weather, is playing less and less well with the investment community, and we note firms like Next Plc. and Marks & Spencer have latterly shied away from attributing their sagging clothing sales to the British autumn.
The fact that SuperGroup hasn’t followed suit puts it at risk of increased negative attention within the sector by default.
But perhaps more darkly, SuperGroup has revised its full-year margin guidance from a rise of 25 basis points, to now an expectation of no margin gains.
SuperGroup explains this by saying it will be clearing over-stocked items left over from the first half.
For me, this spotlights SuperGroup’s fashion supply chain and space management systems as having an even greater need of the kind of modernisation programs that its peers like Inditex, Hennes & Mauritz, M&S, Hugo Boss and others have embarked on.
This basically means they now aim to buy goods more often and closer to home, rather than relying on seasonal collections sourced months in advance.
Chains adopting this approach tend to deal directly with factories to cut down delivery times and ensure a steady supply of new garments.
There is a cost for the relatively smaller-scale retailers that can’t offer manufacturers the huge volumes of their global competitors.
This can be a further factor putting operators like SuperGroup at a disadvantage, as newer supply chain methodologies gain traction, something that seems to us as pretty much inevitable.
Add in the admission I mentioned above, that margins would soften, and the inevitable conclusion is that there should be no material comeback as yet, by the shares from current 17-month lows.
In fact, support might arguably, be stronger closer to 660p.
City Index’s SuperGroup Daily Funded Trade seems to be reflecting current vulnerabilities in the shares well.
Clients seem well aware that re-basing the title at levels closer to the equivalent of 660p support would require a confirmed breach of the current channel.
So long as momentum is not overstretched, renewed tests lower are likely.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.