Superdry PLC (LON:SDRY) shares tumbled after saying it expects full-year profits to slump, blaming warm weather, consumer uncertainty and lack of innovation in some of its core clothing categories.
The retailer said sales remained under pressure during “unseasonably warm weather” in November and into December – two of its biggest trading months of the year – due to its reliance on winter clothing.
“This has resulted in an adverse profit impact of around £11m in November and the Company expects a potentially similar profit impact in December if trading conditions do not improve,” the company warned.
The group said there was still considerable uncertainty surrounding the weather outlook, consumer behaviour and the impact of wider economic and political uncertainty as Brexit looms.
It anticipates underlying profit before tax of £55mln to £70mln for the year, compared to £97mln the previous year.
First-half profit slides
Superdry issued the profit warning in its results for the first half ended October 27, which showed underlying pre-tax profit fell 49% to £12.9mln. The company said the impact of a hot summer on demand and foreign exchange costs led the profit decline.
The gross profit margin dropped 70 basis points to 56.4% as the company discounted items in an attempt to spur demand.
Group revenue increased 3.1% to £414.6mln as growth in e-commerce and wholesale sales offset a drop in retail store sales, underlining the challenges of tough online competition and subdued consumer spending that are putting pressure on bricks and mortar retailers.
The interim dividend was held at 9.3p.
"Superdry had a difficult first half, impacted by unseasonably warm weather across our major markets, a consumer economy that is increasingly discount-driven and the issues we are addressing in product mix and range,” chief executive Euan Sutherland said.
Superdry considers store closures
The company said it would review its store portfolio and is considering closures, size reductions, relocations and renegotiation of rents. The review is expected to be completed by March 2019.
Superdry launched an 18-month product innovation and diversification programme in spring that the company said will increase choice for consumers and reduce its reliance on sales of jackets and sweaters.
The group is also expanding in new categories, including the upcoming launch of Superdry Kids.
“We are focused on an intensified transformation programme to reset the business and address the legacy issues we face, particularly in product mix and range,” Sutherland said.
He added: “We are confident that our transformation programme combined with the underlying operational strengths of the business will deliver a return to higher levels of growth and profitability while realising geographic expansion opportunities and leveraging our multi-channel operating model to serve customers in whichever way suits them best."
Shares plunged 22% to 444p in morning trading.
Has Superdry lost its way?
AJ Bell investment director Russ Mould said first-half results were worse than analysts' low expectations, prompting questions as to whether the business has "really lost its way".
“At the end of the day, you have to ask: does the public still want to wear its products? Its brand is associated with clothes that have Japanese writing on them. That seems like a fad which may have peaked," he said.
“Superdry should really think about how to differentiate itself from the competition, such as through product quality, superior levels of customer service and stores that offer a pleasant shopping experience. It needs to be more creative and give customers plenty of choices."