SuperGroup strategy push puffs up its shares

Flurry of announcements isn’t just fluff

Superdry is coming to America; its owner, SuperGroup, has hired “Luther” star Idris Elba to sleuth-out a new premium fashion line, oh, and the high street fashion chain also said it would start paying dividends for the first time since its 2010 IPO.

A flurry of statements including the above and others, on Thursday, from the maker of puffa jackets and other branded attire for twenty-somethings, puffed-up its shares as much as 9%.

It’s going to be one of the better days for this colourful firm with volatile shares, but does it mark a turning point after a dreadful 2014 during which the stock lost 56% between April and December?

Guidance reassures amid kinks

There are certainly signs of improving stability in the firm, and these started to emerge last year.

Despite posting a 30% tumble in first-half profits in December, from a lukewarm reception to its summer range and warm weather crimping sales of winter clothes, SuperGroup stuck to its outlook for full-year profit to come in between £60m-£65m.

SuperGroup has reiterated that guidance again this morning.

That comes after its Christmas trading update in January showed like-for-like sales rose 12.4% in the 11 weeks ending on 10th January.

That’s not to say there haven’t been new kinks during that period—this being SuperGroup, there have.

The firm has managed to lose two senior executives so far this year.

Last month the firm’s finance director Shaun Wills quit after being declared bankrupt. His departure came two weeks after the abrupt exit of chief operating officer Susanne Given.

Little explanation was forthcoming for either exit, though the one of Given may, in hindsight be more significant.

At the time of her departure it was stated she would leave the company’s employ in the summer and would not get a payoff.

She was not directly or indirectly quoted in the statement about her departure.

Her responsibilities would be absorbed by the executive team, with heads of UK retail, IT and logistics reporting directly to CEO Euan Sutherland—who joined the firm four months before Given stepped down.

‘Sustainable profit growth, cash generation’ back new dividend

Investors are therefore likely reading the narrative of news flow from the company this year as ‘new broom, sweeps out the old stock and last season’s lines (literally and figuratively) brings in new ideas and, hopefully improved efficiency.’

It needs to happen.

Whilst most investors would agree with SuperGroup’s boast in its statement today about its “ability” to deliver sustainable profitable growth, cash generation”, whether or not the firm has capitalised on those strengths optimally so far remains in question.

And whilst SGP looks set to end its 2014 year with a positive cash balance of a respectable £30.5m, the net position has historically been variable, to put it politely.

The firm also needs to stem a clear margin decline, with net leeway having slumped to 6.5% most recently from a more solid 12.7% in 2011.

Asset returns have followed suit with 13.3% most recently for Return on Assets, and 18.7% Return on Equity, from 25.3% and 37.6% respectively in 2010.

The ‘Strategy Update’—in more senses than one, appears designed to address such issues.

• Dividend payments will start with an interim pay-out in 2015-16 financial year:
• prudent cover targeting 3.0x – 3.5x;
• interim dividend equivalent of approximately one third of total dividend for year before;
• any excess capital could at Board’s discretion be used for one-off returns to shareholders whilst maintaining a positive cash balance.

• SuperGroup also bought back exclusive distribution rights for its products in US, Canada and Mexico, terminating licence granted to SDUSA LLC in 2008 by paying £22.3m
• Expects North America operations to be profitable from 2016-17
• Reinforced its Board with another proven sharp-shooter— Penny Hughes, a former Coca Cola executive

The firm also announced a move that seems more aimed at extending the reach of its brand.

Actor Idris Elba, of “The Wire”, BBC TV series “Luther” and other shows and films, will collaborate with Superdry to design and produce a premium line of clothing.

Yield has some catching-up to do

Hurdles remain high for SuperGroup, on a relative basis.

Even if the effective yield can climb closer to SuperGroup’s peer group average, the firm’s laggard status will probably continue to show for some time.

Market growth prospects don’t rate it more highly than a list of retail sector peers, compiled by Thomson Reuters, by use of quantitative data.

SGP is rated with a 36% discount, though to be fair, ASOS’s questionable 85.57 times forward price/earnings ratio skews the average of a group that also includes N. Brown Group (14.93), WH Smith (15.23) and Debenhams (10.82).

Still shareholders are continuing to buy SuperGroup’s new image this year, looking at the stock’s climb off December lows, albeit it’s not been a sure-footed rise.

Today’s spike takes the shares through major resistances and back to the pivot that stymied a rise between January and February.

Promising momentum offers the shares another chance amid continuing good news flow.

Shorter-term, after this morning’s nice spike, which also shows in City Index’s SuperGroup Daily Funded Trade, the title looks like it needs to ease a bit more.