Superdry’s very large kitchen sink and Barratt beats expectations

Archived article

Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

“A small decline in the FTSE 100 may not cause too much fuss among investors as the blue chip index is still trading over the 7,500 mark. Having been in investors’ good books for several recent sessions, utilities are now among the top fallers on the UK market, albeit only experiencing marginal losses,” says Russ Mould, Investment Director at AJ Bell.

Superdry

“Julian Dunkerton said he wanted to clean up Superdry and he’s only gone and bought the biggest kitchen sink available.

“It is common for a change in leadership to trigger a complete review of a business and to undertake something called a ‘kitchen sinking’ exercise. The idea is to release as much bad news as possible in a single announcement, sweeping it all up and chucking it in the sink so you can clean up the business.

“The retailer says margins, pre-tax profit, dividends and net cash are all down. Onerous lease and impairment charges are up dramatically. For Chairman Peter Williams to say these results are ‘disappointing’ is an understatement.

“No-one was expecting Dunkerton to quickly revive Superdry but the market is clearly miffed that the guidance for the new financial year is declining revenue and for the financial performance to still reflect historical issues which have weighed on the group.

“Before this announcement was made, the consensus analyst forecast for its new financial year was £896m revenue and £53.7m pre-tax profit. That now looks far too ambitious given Superdry made £871.7m revenue and £41.9m underlying pre-tax profit in the financial year just reported. Analysts and investors will need to reset their expectations.

“Dunkerton appears to have brushed off this setback by saying the company’s issues will not be resolved overnight. Shareholders will no doubt be patient for the time being while the turnaround programme is created and executed, however this time next year Dunkerton will have to show much firmer signs of progress otherwise he will face all kinds of protests from the market.”

Barratt Developments

“Housebuilders look to be enjoying a last hurrah. After a bullish update from its peer Bovis Homes yesterday, Barratt Developments is guiding for full year results to come in ahead of expectations and hit record levels.

“The muted market reaction to today’s news suggests some scepticism over the company’s ability to build on this achievement and could also reflect the fact that the better than expected performance is seemingly flattered by a large one-off sale to a joint venture partner.

“Barratt’s profitability is improving as it dials down exposure to a tricky London market, but it is worth noting that its margins are still running behind most of its peers.

“Barratt has got plenty of cash on its books, roughly in line with levels seen a year ago despite distributing generous dividends in the interim.

“This is likely to be a good thing. For now, the party goes on for the industry to a soundtrack of cheap mortgages, strong market dynamics and Help to Buy support.

“However, companies need to ensure they have the buffer of a strong balance sheet for when the music stops and the lights come back on.”

These articles are for information purposes only and are not a personal recommendation or advice.