Shares in Superdry (LSE: SDRY) were up by 20% as I started writing this (although they’ve since pulled back by a few percent), after the fashion retailer announced better-than-expected financial results. Superdry’s share price has now risen by 123% over the last year. This suggests to me that investors are getting behind the group’s turnaround story.
In this piece I’ll explain why I think Superdry stock could move sharply higher or lower over the next year. I’ll also reveal whether I’d buy Superdry today.
Results: better than expected
Let’s start with the latest news. Superdry’s sales fell by 21% to £556m during the year to 24 April, due to the disruption caused by the pandemic. Despite this, the group’s adjusted pre-tax loss for the year was reduced from £42m to £13m — a considerable improvement.
Superdry is expected to return to profitability this year, with forecasts suggesting a modest pre-tax profit of £10m.
So far, so good, I think. But what happens next? Superdry founder Julian Dunkerton wants to broaden the brand’s appeal to include fashion-conscious younger shoppers and make it the “leading listed sustainable fashion brand“.
In today’s results, Mr Dunkerton said that over the medium term, he expects sales and profit margins to return to historic levels. He also wants to shift more sales online, which I see as essential.
If the business can deliver on these targets, then my sums suggest Superdry’s share price could rise by as much as 300%-400% from current levels. What worries me is that I can’t see much evidence of progress against these targets.
No growth so far
Today’s results also included details of trading so far this year. These numbers reveal that Superdry’s sales rose by just 1.9% between 25 April and 28 August, compared to last year.
Although store sales during this period were 33% above the same period last year, online sales fell by 34%. Superdry’s customers appear to be switching back from the internet to the high street. But the company doesn’t seem to be winning many new fans.
If the trend seen so far continues, my sums also suggest online sales could fall to around 30% of the total this year. That’s too low, in my view — I reckon big brands should be generating at least half their sales online today.
Another concern is that Superdry’s costs are expected to rise by £35m-£45m this year. This is due to the loss of one-off benefits such as business rates relief and furlough, plus higher costs in some other areas.
To offset these costs, I estimate that sales need to rise by at least 10% from last year. So far, there’s no evidence of this.
Superdry share price: my verdict
Sales may pick up as we head into the busy festive season trading period. But I’m concerned by Superdry’s flat sales performance so far this year. I’m also worried about the lack of online growth.
I admit that it’s still early days. Last year was very difficult for all retailers and I believe Mr Dunkerton has made decent progress since he returned to the business.
However, I can’t see any way of predicting whether Superdry’s turnaround will deliver on its early promise. The situation feels too speculative for me, so I won’t be buying the shares now.