SuperDry PLC (LON:SDRY) shares were out of fashion once again on Monday after City broker Liberum slashed its price target and forecasts for the winter coat maker.
The FTSE 250-listed group has lots more than half of its value in 2018, something which wasn’t helped by the surprise departure of co-founder Julian Dunkerton back in March.
His exit came shortly after SuperDry brought in a new strategy designed to help it keep pace in a rapidly changing industry.
READ: Superdry struggles to lift store sales
But Liberum analysts reckon the strategy “is clearly not delivering” and have called for a “strategic rethink” to get the company back to where it should be.
They have slashed their price target to 700p (from 900p) and kept their 'hold' recommendation in place.
Among their list of grievances is the reduction in product options – different sizes, colours, customisation options.
Management has argued that it was offering too many variations which didn’t generate enough sales to justify their inclusion. For example, last year, the bottom 23% of options accounted for just 1% of sales.
Liberum looks at it a different way though: these options – fancy colours and different variations – were key to innovation and quite often set the tone for new products further down the line; prototypes essentially.
“A lack of innovation and a reduction in options has resulted in a sharp reduction in online growth from one of the fastest in the sector to one of the lowest,” wrote Liberum analyst Wayne Brown in a note to clients.
“This indicates a lack of consumer understanding and what the current strategy values.”
In-store margins under pressure
On top of the slowing sales, margins have also come under pressure, with SuperDry running more promotions to try to clear some of the excess stock in its stores which built up during the mild September and October.
“We note that since Black Friday (when it had a blanket 20% off) SuperDry has been on sale in-store with a 30% promotion,” said Liberum.
“This is not the ideal time of the year to have such promotions but we note that inventory has been building throughout the year. This is happening despite the strategic intention to reduce overall stock levels by c.£20mln.”
With all this going on, Liberum has slashed its pre-tax profit forecasts by 30% so far this year and it reckons there is scope for more cuts as well.
Despite that, it still thinks the shares look cheap, which makes them wonder whether management believes in the strategy, having not sanctioned a share buyback or bought shares themselves.
The analysts conclude: “The brand has the flexibility and identity to truly capture the global online opportunity and should be doing much better than it is. In order for this to happen it is time for a strategic rethink.”
Superdry shares fell 3% to 653.9p in mid-morning trading.