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SuperDry profit warning leads to broker downgrade and target price cuts

Peel Hunt downgraded its rating on the stock to ‘hold’ from ‘buy’ and slashed its target price to 550p from 1,200p

Shares plummeted 32.4% in late morning trading

SuperDry PLC’s (LON:SPD) first half results were broadly in line with expectations but the extent of the retailer’s profit warning for the full year took investors by surprise, Peel Hunt said.

Peel Hunt downgraded its rating on the stock to ‘hold’ from ‘buy’ and slashed its target price to 550p from 1,200p after the company warned it predicts full year underlying profit before tax of £55mln to £70mln, down from £97mln the previous year.

READ: Superdry shares plunge as it issues profit warning after 'warm weather' hurts trading

The company, known for its jackets and hoodies, admitted that there was a lack of innovation in some of its core clothing categories and that it was too reliant on sales of winter clothing, which was affected by unseasonably warm weather.

SuperDry issues internal or weather related?

In the first half to October 27, underlying pre-tax profit fell 49% to £12.9mln due to the impact of a hot summer on demand and foreign exchange costs. Weaker demand led to increased use of promotional discounting to lure customers in, which squeezed margins.

Group revenue rose 3.1% to £414.6mln as growth in e-commerce and wholesale sales offset a drop in retail store sales.

“The key question is the extent to which issues are internal vs weather related and the two are very much inter-related given Superdry’s 65% weighting to outerwear, hoodies and sweats,” Peel Hunt said.

“This point means the downgrades at Superdry are likely to far exceed potential risk in other names (downgrades to Ted Baker were sub 10%).”

SuperDry is trying to address its weak trading performance through a product innovation and diversification programme that aims to increase choice for consumers and reduce its reliance on sales of jackets and sweaters.

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.

Liberum takes knife to target price

Liberum maintained a ‘hold’ rating on the stock but cut its target price to 475p from 700p, saying the shares are cheap but “a change in thinking and action is required to harness the global opportunity”.

“The group's ongoing significant underperformance vs. its potential, including its margin contraction, reflects more than just tough market conditions and weather impacts,” the broker said.

“In our view, it raises multiple key questions around the strategic shift that current management is persisting with.”

Shares plummeted 32.4% to 387.4p in late morning trading.

Quick facts: Superdry PLC

Price: 326.8 GBX

Market: LSE
Market Cap: £267.99 m

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