Superdry warns on profits after tough Christmas
The raft of UK retailer trading statements that we see in January continued on Friday with in-the-spotlight Superdry telling us what happened in the 10 weeks up to January 4. And what did we find out? Well, it seems the company had similar issues to others in the fashion retail sector.
Just as M&S had reported a day earlier, Superdry talked of “a strong Black Friday event” but added that the overall peak trading season’s performance “has been lower than expected”. This came as the firm continued its “strategic transition to a full-price stance”.
Anyone trying to drive full-price sales in the heavily promotional environment that fashion retail usually sees these days in the last few months of the year is always going to have a tough time. But in 2019, it seems it was tougher than ever.
Group revenue fell 15.8% with stores down 18.5%, e-commerce falling 9.3% and wholesale dropping 16.9%. Just how radical the changes the company is making to push through its full-price focus can be seen from the fact that 88% of the product in stores for fiscal 2020 is full-price, compared to just 46% in the previous year and with consumers being hugely price-conscious, that was clearly a problem.
The company said that during the period, “the high street has seen unprecedented levels of promotional activity coupled with subdued consumer demand immediately after Christmas. These factors, combined with shortages of some better-selling product, driven by the need to reduce our inherited inventory position, adversely impacted our sales during peak trading”.
Any good news? It added that 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”.
As we know, a new team coming in and making big changes to product is always limited by how quickly that new product can filter through and older product can be sold. And that happens at all market levels. Only this week we heard about Smythson’s new creative director Luc Goidadin’s first collection dropping for AW19, despite him having joined in early 2018. And in November 2019, Burberry said that Riccardo Tisci’s collections still only account for around 70% of its mainline retail store offer, despite him also having joined in early 2018.
Back with Superdry, the company said that all the factors cited above “led to lower than anticipated retail sales of £23 million since Black Friday, predominantly online”. And while it’s “encouraged by [the] response to the limited ranges that we have introduced, this challenge will remain until the new design philosophy and product can be fully implemented across the entire range, with full impact expected by the launch of autumn/winter 2020”.
Unfortunately, as the percentage drop for wholesale showed, the. performance here didn’t make up for the weakness in its own stores and was also impacted by “certain timing issues during the quarter.” But the company said that while “this shows a further £5 million sales shortfall since Black Friday, we expect this to partially reverse during the balance of the financial year”.
The benefit of strong gross margins and cost initiatives won’t offset the profit impact of the sales shortfall though and the company now expects underlying pre-tax profit to be anywhere from zero to £10 million. That would be well down on the prior year’s figure when the profit plunged to £41.9 million in the 12 months to end of April 2019, having been £97 million in the year before that.
CEO Julian Dunkerton 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”.
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