Superdry says profits could be zero after tough seasonal trading

Superdry

Cheltenham-based global clothing retailer Superdry has issued a trading update covering the 10 week period from 27 October 2019 to 4 January 2020, revealing that a turnaround strategy still in its early stages, and warns that its profits could be zero.

Despite a strong Black Friday event, Superdry reported that peak trading performance has been lower than expected as it continues its strategic transition to a full price stance.

The fashion retailer’s woes match gloomy figures released earlier this week by the British Retail Consortium, which branded 2019 the “worst year on record for retail.” As a quote total UK retail sales for 2019 decreased by 0.1%, compared with 1.2% growth in 2018. But there are bright spots on the horizon for some other retailers which have their headquarters in the region.

Superdry says it has been encouraged by initial customer reaction to the limited amounts of the new management team’s Autumn/Winter 2019 stock. However, this has not been sufficient to offset weaker trading on older product, and shortages of some better-selling product, driven by the need to reduce stock, adversely impacted sales during peak trading, it added.

It is these factors that have led to lower than anticipated retail sales of £23 million since Black Friday, predominantly online, it revealed.

Superdry is pinning its hopes on the roll out across its whole range of new designs and products, with full impact expected by the launch of Autumn/Winter 2020.

The company’s wholesale performance has also been impacted by timing issues during the quarter, showing a further £5 million sales shortfall since Black Friday, but it expects this to partially reverse during the balance of the financial year.  

It says that the benefit of strong gross margins and cost initiatives will not fully offset the profit impact of the aggregate shortfall in sales. A company statement said: “Taking into account our revised sales expectations for the balance of the financial year, and the challenging trading environment in which we are operating, we now expect Underlying PBT(1) to be in the range of £nil – 10m.”

Julian Dunkerton, Chief Executive Officer, said: “Everyone at Superdry continues to work intensively to deliver the turnaround of the business. While we have always said it will take time, we continue to make progress in implementing our strategy. A key element of this is to focus on and return to full price sales and reduce promotional activity, and we halved the proportion of discounted sales over our peak trading period, benefitting both our margins and the Superdry brand.

:However this adversely affected our sales during the peak trading period given the level of promotional activity in the market. Despite this, our disciplined plan to reinvigorate the brand and return Superdry to sustainable long-term growth is on track.”

Looking at UK retail sales as a whole, Helen Dickinson OBE, Chief Executive at the British Retail Consortium, said: “2019 was the worst year on record and the first year to show an overall decline in retail sales. This was also reflected in the CVAs, shop closures and job losses that the industry suffered in 2019. Twice the UK faced the prospect of a no deal Brexit, as well as political instability that concluded in a December General Election – further weakening demand for the festive period. The industry continues to transform in response to the changing technologies and shopping habits. Black Friday overtook Christmas as the biggest shopping week of the year for non-food items. Retailers also faced challenges as consumers became both more cautious and more conscientious as they went about their Christmas shopping.

“Looking forward, the public’s confidence in Britain’s trade negotiations will have a big impact on spending over the coming year. There are many ongoing challenges for retailers: to drive up productivity, continue to raise wages, improve recyclability of products and cut waste. However, this takes resources, so it is essential the new Government makes good on its promise to review, and then reform the broken business rates system which sees retail pay 25% of all business rates, while accounting for 5% of the economy.”