Superdry PLC (LON:SDRY) has slashed the value of its retail estate after returning boss Julian Dunkerton identified more than 100 unprofitable stores.
In Wednesday’s “disappointing” full-year results, the coats and jumpers maker told investors it has taken a £129.5mln one-off charge, reflecting the drop in value of its stores as well as a hefty onerous lease provision – when the cost of the seeing out or exiting the lease outweighs any potential benefits.
Despite the findings, Superdry does not expect “significant number of closures” in the current financial year. Instead, it will seek talks with landlords to see if rents can be renegotiated, which could reverse the fortunes of previously unprofitable stores.
As a result of the big writedown, the fashion brand swung to an £85.4mln loss in the 12 months to the end of April, compared with a profit of £65.3mln a year earlier.
Even excluding the charges, underlying profits slumped by 57% to £41.9mln (2018: £97.0mln). Revenue was flat at £871.7mln (2018: £872.0mln).
The poor performance was well-flagged to investors though, with Superdry having issued three profit warnings during the year.
'Year of reset'
Dunkerton, who returned to the company in April after a gruelling six-month battle against the old management team, said it would take time to get things back on track.
“The issues in the business will not be resolved overnight,” the 54-year-old said. “My first priority on returning to Superdry has been to steady the ship and get the culture of the business back to the one which drove its original success.
“Although we are only three months in, our initiatives are gaining some early traction, and I am confident we are doing the right things to ensure that over time Superdry will return to strong profitable growth.”
That is unlikely to be an easy task, though. Superdry pointed out that the retail market will likely “remain highly competitive”, while Brexit makes for an “uncertain” consumer backdrop.
With that in mind, as well as the “historic issues inherited”, Superdry is guiding for a “slight decline” in revenue in the coming 12 months, which it sees as “a year of reset”.
More pain to come?
“FY 2020 is seen as a year of ‘reset’. So, the turnaround is only just beginning and there could be worse to come in the near term,” speculated Markets.com analyst Neil Wilson.
“Shareholders will have to tough this out for a while yet. It’s been a rough year for the brand and things will not be remedied overnight – as Mr Dunkerton admits.
“Shares are already on the deck though, so if the turnaround works then it could be a more positive 2021. A while to wait though.”
Shares were down 2.2% to 437.7p in early deals on Wednesday.