• Bloomberg

Superdry Takes a Summer Stumble

An embarrassing profit warning will revive concern about the credibility of the retailer’s management.

There are those who put on a parka as soon as a cloud appears in the summer sky. Unfortunately for Superdry Plc, there aren't enough of them.

The clothing retailer said on Monday this year's unseasonably warm weather in the U.K., continental Europe and the east coast of the U.S. deterred shoppers from buying its jackets and hoodies.

Given these garments account for 45 percent of annual sales, it's understandable that high temperatures would be painful. Zalando SE, as German online retailer, warned about Europe's hot summer last month. Even so, the weather will hurt Superdry's full-year profit by about 10 million pounds ($13 million).

But there's another wrinkle in the sweatshirt. Superdry's currency hedging arrangements didn't protect the company from adverse foreign-exchange movements to the extent it had hoped. That will result in a further 8 million-pound hit.

Add in plans to ramp up spending on marketing at a cost of another 5 million pounds, and analysts at Berenberg expect the consensus estimate for full-year pretax profit to decline by 25 percent to as little as 80 million pounds.

It had looked that Superdry had left the bad old days of multiple profit warnings behind it. Founder Julian Dunkerton stepped down in March, while veteran retailer and CEO Euan Sutherland had been professionalizing the retailer's operations.

The profit warning – particularly the less effective hedges – will call into question the management's credibility once again. Although the foreign exchange hit is nothing like as embarrassing as the basic arithmetical errors that prompted a profit warning in 2012, investors will be wary.

The stock fell as much as 22 percent on Monday to 7.88 pounds. That fall is all the more painful because Dunkerton netted 71 million pounds in July by selling the shares when they were at about 12.85 pounds.

They now trade at about 7.5 times estimated earnings, less than half the average of Bloomberg Intelligence's European specialty apparel peer group.

Sutherland is keen to stress that the current problems are short-term in nature. But until Superdry can show that this fashion faux pas was really down to inclement weather and not more fundamental problems in the business, it's hard to see that valuation catching up with peers.


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