Cold weather reliance means Superdry profit warning after hot summer

By

Sandra Halliday

Published
Oct 15, 2018

Superdry warned on sales and profits on Monday and said the very hot weather during the summer and relatively few number of colder days in September will dent its results to the tune of £10 million.

Given that it usually delivers up to 75% of full-year profit in the second half, it's clearly a business geared towards cold weather products so a long, blisteringly hot summer and a mild early autumn are bound to have a negative effect.

So let’s look at the details of its unscheduled Monday stock exchange update. It said that for H1, it’s now expecting mid-single-digit global brand revenue growth and low-to-mid-single digit statutory revenue growth. E-tail revenue will only rise in mid-single-digits although its own sites will see low-teens double-digit revenue growth. Wholesale revenue should be up in high-single-digits (both for the half and the full year). And worst of all, its own stores will see a low-single-digit decline. 

And all of that will mean profits for the year coming in around £10 million below expectations, as mentioned.

What has gone wrong specifically? “Against a backdrop of widely reported weaker consumer confidence across its key markets,” there were “two specific factors,” the company said.

“The summer and autumn has seen unseasonably hot weather conditions in the UK, Continental Europe and on the East Coast of the USA,” it added. “These conditions have continued into September and the first half of October and have significantly affected demand for autumn/winter product, particularly sweats and jackets, which account for around 45% of annual sales. 

“The effect of the weather conditions in the first half, when combined with the well-publicised challenges facing some of Superdry's trading partners, is expected to adversely impact profits.”

DIVERSIFICATION

That hurt its share price on Monday, which fell over 20% in early trading. But the company isn't sitting back and letting it happen. It’s now “five months into its 18-month product diversification and innovation programme “to broaden choice [and] address this reliance on heavier weight product.”

Included in that is an acceleration of its expansion into “lower participation” categories like dresses, skirts, women's tops and denim and further extending into new market segments such as premium, sport and licensed product ranges. And it’s “continuing to maintain strength in its core categories (sweats, jackets and T-shirts) through a focus on more relevant innovation.”

But the weather isn't the only issue and exchange rates have had a negative impact too with its hedging mechanisms not providing the degree of protection expected, it said on Monday. “This will lead to around £8 million in additional foreign exchange costs, split evenly over the financial year.”

So is there any hope for the second half? That's unclear at the moment and very much depends on how the weather and other issues play out.  

The importance of Superdry's cold weather product categories can be seen from the fact that it usually delivers 70%-75% of full-year profit during the second half of its financial year, so annual profit will be “heavily influenced” by H2. It has had some encouragement with “the small number of cooler days in September [seeing] strong year-on-year performances, particularly from cold weather product categories as footfall increased.”

Not to say that it's expecting a return to normality any time soon. “Given that global consumer behaviour is changing at an ever faster rate, Superdry is continuing to invest in order to further drive growth,” it said. 

CEO Euan Sutherland added that the company has “a strong brand with significant growth opportunities, backed by robust operational capabilities, but we are not immune to the challenges presented by this extraordinary period of unseasonably hot weather. We are well prepared for peak trading, but the second half of financial year 2019 presents both risks and opportunities.”