Superdry – founder ready to pump more funds into his recovering style brand, while shares fall 18%
Although it is showing good retail sales growth, it is at a slower than hoped-for rate.
The iconic style brand Superdry (LON:SDRY) is battling away at its turnaround plan, while also looking to strengthen its balance sheet, so a round of fresh financing is being considered.
Operating in over 50 countries globally, the group has 219 physical stores and around 450 franchisees and licensees.
Through its distinct collections, defined by consumer style choices, the company considers that Its mission is to be the Number 1 sustainable style destination.
It designs affordable, premium-quality clothing, accessories and footwear which are sold around the world.
The company has a clear strategy for delivering continued growth via a multi-channel approach combining stores, e-commerce, and wholesale.
After Christmas showing strong demand
In January the group stated that its brand recovery was back on track with strong demand in the pre-Christmas weeks at its stores, however its wholesaling side was some 5.2% weaker.
Against that it had to contend with expected macroeconomic hassles and founder and CEO Julian Dunkerton stated that he did not expect market conditions to become easier any time soon, even so he approached the year ahead with optimism.
South-Korea deal for cash
Well, that was in late January – since when the group has sorted out its financing pressures and arranged a $50m (£34m) deal out in Asia for the sale of the group’s intellectual property in the APAC region.
The net proceeds from the Sale will be used to increase the strength of the company’s balance sheet, boost liquidity, and fund its ongoing working capital requirements, including the implementation of a significant cost reduction programme.
The recovery plan is still underway
The late March announced deal mentioned that the company is also considering additional steps to further strengthen its balance sheet in connection with its turnaround programme, which is being delivered in a challenging market, which could include a potential equity issue.
In its latest Trading Statement, the group is now looking for its current year revenue to be in the range of £615m to £635m, up slightly from last year’s £609m and accordingly it has withdrawn its profit guidance to the market from previously expecting a ‘broadly break-even’ result.
Founder ready to pump in more cash
It states that there are more savings to be put into operation, while it is considering an equity raise of up to 20% in new capital.
Dunkerton has declared that he has confidence in the prospects for Superdry and that he will fully support and materially participate in such an equity issue.
“The Superdry brand continues to evolve but there is no doubt that the market conditions we face are challenging, compounded by the issues we have previously disclosed and are working to address in Wholesale.
As a result, while we continue to deliver like-for-like growth in retail sales, we need to ensure our business is in the right shape to navigate these difficult times, which is why we are looking hard at our cost base.”
Analyst Opinion – a Buy worth 250p a share
Analyst Wayne Brown at Liberum Capital still rates the shares as a Buy but has halved his Target Price for the group’s shares from 500p down to just 250p – which is still significantly higher than the pre-statement price of 106.8p at which the company was capitalised at £87m.
His pre-tax expectation for the April year-end is for £614m sales and a loss of £12.0m (£21.9m profit).
For the coming year Brown is hopeful for some £622m of turnover and a bounce back to £20.3m profits, worth 18.9p per share in earnings.
Jumping forward the retail sector specialist estimates £645m sales, £43.3m profits and 40.3p of earnings per share, hence his Target Price aim.
The group’s shares fell 18% on the news to 86p.