Superdry tumbles as Berenberg downgrades after 'annus horribilis'
By Michele Maatouk
Date: Tuesday 11 Dec 2018
(Sharecast News) - Ahead of its interim results on Wednesday, Superdry suffered heavy losses as Berenberg downgraded its stance on the fashion retailer to 'hold' from 'buy' and cut the price target to 950p from 1,200p following an "annus horribilis" for the group.
"We believed the ongoing operational improvements were sufficient to support high single-digit sales growth, but we had underappreciated the extent of the product repositioning required," it said.
The bank said it was cutting its earnings per share forecasts again, by 8%/13%/10% in FY19E/FY20E/FY21E to reflect ongoing weakness across the UK retail market, as well as its understanding that the current strategy could take another 12 months to come to fruition. This leaves Berenberg 12%/18% below FY19E/FY20E consensus.
"With this in mind, while we believe there is upside to valuation once trading improves, we see potential for negative rather than positive catalysts on the horizon and downgrade to hold," it said.
It pointed to Superdry's warning back in October that unseasonably hot weather across the UK, Europe and East Coast of the US had affected demand for its autumn/winter products, particularly jackets and sweats that typically account for 45% of annual sales.
Berenberg said that while it's difficult to track the short-term weather impact, retail sector data, along with comments from AB Foods' Primark, provide little evidence to suggest trading conditions have improved since the company's last trading update. The bank also took issue with Superdry's "over-reliance" on winter clothing.
Meanwhile, Liberum slashed its price target on hold-rated Superdry to 700p from 900p, saying it was "time for a strategy rethink".
The brokerage said that a greater focus on fewer options means the company is now taking larger bets across a portfolio of options that has been cut by around 40%.
"Superdry is surely more likely to become unstuck making multiple more quantities of the same product irrespective of what historic trends tell you. If you making larger quantities of core predictable product you are more likely to put it on sale and then replace it with something similar as the operating model has shifted from design-led to buying-led," it said.
Liberum analyst Wayne Brown said he had spoken to Superdry's co-founder, Julian Dunkerton, who told him he left the company because he could not "put his name" to the strategy of cutting the numbers of products for sale.
Still, Liberum said the shares look very cheap on any metric.
"If management felt the same on valuation and had confidence in the strategy, then why are they not buying back shares or even buying shares in a personal capacity?" it said.
At 0935 GMT, the shares were down 11.2% to 549.50p.
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