Supergroup (LSE: SGP) has joined the growing number of companies blaming this autumn’s warm weather for a slump in sales: the firm’s wholesale orders fell by 3.7% during the second quarter, while like-for-like retail sales were down by 4.2%.
Shares in the Superdry owner fell by nearly 10% when markets opened this morning, after Supergroup used its second quarter trading update to cut its profit guidance for the year to between £60 and £65m, down from a previous guidance of £67m – £72m.
Too many problems?
Along with the weather we’ve already had, Supergroup also blamed its profit warning on heavy discounting among its competitors and “continuing weather related uncertainty”.
The company then went on to say that “planned strategic investment in the cost base” — investment in new warehouses and systems — could also hit profits. This is strange, because only three months ago, Supergroup said that the group’s new warehousing and merchandise management operations were “performing to plan”.
To me, all of this sudden bad news suggests to me that Supergroup’s new chief executive Euan Sutherland has discovered that things aren’t quite as rosy as he expected at the firm, and has decided to get all the bad news out in the open at the start of his tenure.
Frankly, I’m worried
In today’s announcement, Supergroup says that typically, 70%-80% of its full-year profit is made during the second half of its financial year, which started on 26 October. It’s probably fair to assume that the weather will rapidly get colder as we enter November, so presumably sales of outerwear will return to normal.
Yet despite all of this, Supergroup has cut its full-year profit forecast by around 10% on the strength of a poor first half. To me, this suggests either that the first half was truly disastrous, in terms of discounting, or that the company has reason to expect that things won’t improve as we enter winter.
Buy today?
I’m a bit concerned by today’s fresh evidence of problems at Supergroup, but CEO Euan Sutherland comes with a strong reputation as a retailer from his time as Chief Operating Office of B&Q owner Kingfisher. He may well be the man to finally sort out Supergroup’s growing pains.
With a forecast P/E of around 12 and no debt, Supergroup doesn’t seem overly expensive, and its growth story remains appealing. Overall, I rate the shares as a hold, although brave investors might want to buy into today’s dip.