Superdry crash seen as opportunity

Having been one of the must-have retail shares at the end of 2017, Superdry (SDRY) continues to discover how quickly stockmarket fashions can change.

The stock is now down 39% since its all-time peak of 2074p on January 5, with today’s 18% decline the result of a disappointing trading update in which chief executive Euan Sutherland lowered the City’s profit expectations.

While Sutherland pointed out that the company’s forecast range of £96.5 million to £97.5 million is still a further year of double-digit profit growth, the figure for the year to April 28 is below previous forecasts at £98 million.

Store sales have suffered from snow disruption while its gross margin is expected to be down 200 basis points due to a shift in the sales mix towards lower margin wholesale growth and clearance activity.

In the current retail climate, investors are understandably quick to punish any signs of disappointment, even if many analysts remain supportive of Superdry and its strategy as a “Global Digital Brand”.

Peel Hunt, for example, recently set its price target at 2300p while Cantor Fitzgerald has stuck by its figure of 1920p today.

Liberum said in March that an earlier drop in share price represented a good buying opportunity, although it subsequently cut its 2100p target price to 1680p.

In this unforgiving market, the competition facing Superdry is highlighted by the fact that Liberum’s top retail picks include ASOS (ASC), Boohoo (BOO) and Ted Baker (TED).

Cantor said today’s sales update was broadly in line with its expectations after full-year sales growth of 16% to £872 million.

This reflected strong performances in wholesale and e-commerce, with sales up 29.6% to £323 million and 25.8% to £163 million respectively to offset a softer showing in stores, where sales were up 3.4% to £385.5 million.

Global brand revenues increased by 22.1% to £1.6 billion in the financial year, highlighting the growth of the label in markets such as China and the United States.

The business, which dates back to 1985 when Julian Dunkerton co-founded Cult Clothing from a market stall in Cheltenham, now operates in 54 countries and has almost 5,000 staff.

Although Dunkerton recently sold £18 million of Superdry shares and stepped down as director, he continues to own around a quarter of the business.

Cantor’s Mark Photiades’ buy recommendation is based on a 19 times PE multiple. Superdry is currently trading on a 2018 PE of 15.3x.

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