Full-year results from Superdry (LSE: SDRY) provided no surprises, revealing a statutory pre-tax loss of £85.4m and a 210.3p loss per share. There was still a dividend, mind, of 11.5p per share (down from 31.2p a year ago).
At first glance, paying a dividend might seem like a surprising move, but it did involve only a token 2.2p final payment, so I’m not too disturbed by that. And the firm’s underlying figures were less bad, with pre-tax profit down 57% to £41.9m and earnings per share down 61% to 36.3p.
All eyes are now on returned founder and interim chief executive Julian Dunkerton. His success in getting shot of the old board, who he blamed for the company’s fall from fashion, surprised many observers, and I’ve been trying to make sense of it ever since.
Honesty
Dunkerton was candid in telling investors that the company is in for another weak year this year, pointing out that: “The issues in the business will not be resolved overnight.” He added: “My first priority on returning to Superdry has been to steady the ship and get the culture of the business back to the one which drove its original success.” And I do think that’s what the company needs right now.
I think Dunkerton’s take on Superdry’s problems are absolutely on the money, in that the previous board had lost track of the firm’s competitive advantage and was moving erroneously towards the characteristics and direction of a general clothing retailer.
As a fashion brand, Superdry has always depended on appealing to a niche customer segment, and that’s essentially been young adults who are followers of a certain style — a very different appeal than more general fashion retailers, like Next for example.
Celeb
I’ve just done a search for celebrities wearing Superdry clothing, and among the results I found David Beckham, Taylor Swift, Kylie Jenner, Ben Stiller, Idris Elba, Pippa Middleton… and I think that gives a reasonable view of the company’s target market.
Are people who are inspired by such celebs likely to want to be seen as wearing the same brands that kids wear? I don’t think so, and I think Julian Dunkerton was absolutely right in his complaint that the old board’s move into that market segment was damaging the brand.
Now, that’s all well and good, but what does Superdry look like now from a financial perspective? My colleague Paul Summers has examined that question in some detail, and likes what he sees from a contrarian perspective so much that he’s invested in it himself.
Contrarian buy?
Seeing the shares on forward P/E multiples of around 10 and with no debt problems, I agree with Paul’s opinion that all of the pessimism is probably already factored into the share price. I also think Superdry is in a strong enough financial position to handle another year or two of weakness while working to rebuild its brand.
But personally, I’m staying away, for the main reason that I don’t know what it takes to build a fashion brand in the first place — and I can’t help fearing that it’s harder to rebuild one that’s been tarnished.Â