Superdry e-tail and wholesale surge, but store sales are tough
It was largely good news for Superdry on Thursday as the fast-growing casualwear label unveiled full-year results with plenty of positive figures. But it wasn't all positive as, like so many peers, its physical stores are facing challenging times.
It’s taking action to ensure its growth continues, with a strong focus on e-commerce and wholesale, as well as investment only in stores that can pay their way quickly, spending on in-store tech to enhance the customer experience and staff efficiency, launching a B2B website for wholesale customers, and expanding in markets with huge potential such as China and North America. So let's look at a few of the figures for the year to April 28. Global brand revenues rose 22.1%, reaching £1.6 billion with growth in all key territories, while group revenues rose 16% to £872 million, led by its “capital-light” channels. Wholesale revenue was up 29.6%, including eight new markets reached during the year, and retail revenue rose 9.2%, driven by e-commerce that was up 25.8%. E-tail now accounts for 29.7% of overall revenues. But it wasn't double-digit figures all the way. The company said that store revenues rose only 3.4%, a low figure taking account of its overall retail space expansion during the year and the impact of inflation. And while underlying pre-tax profit was up 11.5% at £97 million, statutory pre-tax profit actually fell 23%, dropping to £65.3 million from £84.8 million a year ago, due to one-off issues. But the company increased the dividend by 11.4% “as a result of continued strong cash generation,” which should keep its shareholders on-side, despite the firms share price having fallen in recent periods. Clearly, Superdry is still proving to be one of the winners in the current difficult environment, even though its physical store sales are challenged. But nobody could complain about the company's digital progress. Its progress on this front was helped in the past four months by new systems and additional country-specific websites for the US and Switzerland, as well as by the successful expansion of integrated digital and social media campaigns and increasing consumer engagement across digital platforms. It was also boosted by the successful launch of Superdry Sport as a standalone brand and by product development has boosted with its “leadership of the core jackets category” reinforced with launch of its premium down range. And while store sales may be slower than Superdry would like, it's continues to invest in them. It said it has seen a successful trial of RFID in five stores and during the last year, a net 75 new franchise stores were opened, increasing franchised locations by 24%, mainly in the EU. CEO Euan Sutherland said that while “the consumer environment continues to be challenging, the board remain confident that Superdry is a uniquely advantaged, highly cash-generative business that will continue to deliver sustainable growth.” TOUGH TIMES Despite the company talking up its achievements after a reasonably strong year, we can't ignore the fact that its retail performance did deteriorate as each quarter went by. For instance, retail revenue had been up more than 15% in the first quarter, but by Q2 it was rising only a little above 10%, in Q3 it recovered to rise above 11%, but in Q4 the figure was just 0.5%. And in its forecast for the current year, Superdry said its stores will see “ongoing challenging conditions,” although wholesale would see mid-teens growth, while e-commerce would see mid-to-high-teens growth. The challenges in its physical stores are clearly affecting its investment plans, with its original strategy of opening 8% more owned space in the current year having been scaled back to an increase of between 4% and 5%. Does that mean stores are becoming less important to the company? Up to a point, yes. But on Thursday it stressed that they continue “to be a core element of our business both from a brand presence and revenue perspective” and it “will only grow owned space in a measured approach, taking advantage of the best locations where the brand has highest visibility and resonance with our consumers and where returns on our capital are faster.” And it's introducing technology into its store estate, “freeing up colleague time to serve customers.” Using enhanced mobile PoS devices “will allow staff to drive incremental sales, as well as access live inventory and trading data, while still providing exceptional service to customers.” It will also be trialling more digital store formats, “leveraging consumer preferences and optimising the capital intensity required versus a traditional store layout.” OPPORTUNITIES With more investment being channelled towards digital this year, there will be plenty of developments on this front, boosting the speed and features of its mobile app and launching new websites in key growth markets such as Ireland, Poland and Greece, “as well as opening up new channels with third party partners to access incremental sales.”
The launch of a new B2B website will enable its customers to view and purchase from the full range of Superdry product, streamlining their ability to make in-season purchases in response to their sales performance. This is obviously a growth opportunity and the company said it sees other opportunities in established heritage categories such as jackets and hoodies, as well as building categories where its approach “can be more disruptive such as jeans and in focused new category development.” Within this, womenswear remains its “most significant opportunity,” contributing 36.3% of its group revenue with massive potential for that figure to be higher. It’s investing in building “an even more granular understanding of both the purchasers and wearers of Superdry clothing, which will allow us to broaden and refine our offer to better meet the needs of the womenswear market.” On the international front, the company also thinks that it has many more growth options that is taking advantage of at the moment. Although it's in 157 countries, “the brand remains under-represented in all major geographies compared to brand peers, providing a significant opportunity for growth.” It sees North America and China as the biggest opportunities.