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Superdry nervous to face highly promotional and competitive high street over Christmas

The clothing brand booked a £4.2mln loss before tax in the six months to 26 October, as founder Julian Dunkerton began a strategy reset to keep price tags intact and grow margins

Superdry PLC -

Troubled retailer Superdry PLC (LON:SDRY) said it is cautious about facing the “highly promotional and competitive” high street over the peak festive trading season, despite making an “encouraging early start” with its strongest online Black Friday ever.

The faux-Japanese clothing brand saw revenues slide 11% lower at £369.1mln in the six months to 26 October, reflecting the planned move to stop selling its clothes at discounts and reducing its reliance on promotional sales activity, and sank to a loss before of £4.2mln compared to £26.4mln profit this time last year.

READ: Superdry full-price strategy hits sales but profit margins surge

The shift comes as part of a two-to-three year strategy ‘reset’ announced by the company's returning founder, Julian Dunkerton, in November, to get “full control” of product and costs.

Store revenue picked up in the second quarter and was continuing to improve in the third, according to Superdry, which said it is now guiding for sales to book only a “mid single digit” decline in sales over the full-year.

“There remains considerable risk over the peak trading period, against a highly promotional and competitive high street,” said Superdry,  citing “continuing macroeconomic uncertainty, particularly from the UK election and Brexit”.

The group has focused so far on growing its underlying gross profit margin, which increased by 250 basis points in the first half of the year, with progress being offset by foreign exchange headwinds and stock accounting changes, leading to an actual decline to 56.3% from 56.4%.

The firm said it expects margins in the next six months to be in line with the first half of the year, with a diluting effect from third party wholesale ecommerce on margins from direct sales online and in its shops.

"We are only eight months into a process that will take two to three years”, said Dunkerton, saying he was “pleased with the trajectory of performance we have seen from Q1 to Q2 and subsequently into our peak trading period”.

Superdry has faced difficulties over the last two years, with shares losing around three quarters of their value in 2018, and reporting a £85.4mln loss last year.

Analysts at Liberum Capital maintained a 'buy' recommendation on the stock, saying that although the brand has reduced its guidance, "we do not feel it should detract from the recovery story and we continue to see clear building blocks that can support a doubling of profits between FY20E-22E."

They went on to note that, with a current market value of £411mln and around.£193mln of stock at the end of the first half, 55% of the current market cap is made up of liquid assets.

"This seems very cheap," said Liberum.

Shares fell another 5% to 476.6p in early trading on Thursday.

Quick facts: Superdry PLC

Price: 284 GBX

Market: LSE
Market Cap: £2.33 m

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