The hard work starts now with the retailer’s turnaround
Thursday 11 Apr 2019 Author: James Crux

Following a stunning boardroom coup (2 Apr), clothing entrepreneur Julian Dunkerton has returned to Superdry  (SDRY). However, market confidence in the prospects of a turnaround remains low, with the shares having been notably weak since Dunkerton’s narrow victory.

We expect that many of the big investors who voted against the board change are now giving up and selling out of the stock which may take some time to complete.

The declining share price trend has actually been intact for much longer. At 448.6p, the stock currently trades 78% below January 2018’s £20.74 peak following a cycle of earnings downgrades.

Dunkerton has already set out his broad recovery plan for the fashion retailer and wholesaler where he is now interim CEO, but the hard work starts now.

He’ll seek to arrest the steep trading decline at the weather sensitive jackets-to-sweatshirts seller that has been his life’s work while facing into exacting market conditions.

Having been vanquished by Dunkerton and his fellow co-founder James Holder – and with Peter Williams appointed as the new chairman – Superdry’s entire board and both brokers have resigned. This includes the departure of chairman Peter Bamford, CEO Euan Sutherland and finance director Ed Barker.

Dunkerton will need to recruit a new CEO and a first-rate numbers man as soon as possible, and get cracking on turning round the fortunes of the seemingly-ubiquitous Superdry brand associated with Japanese writing.

Bears question whether Superdry is a fad with diminishing ‘street cred’ as the brand is now sported by an army of middle-aged men.

Stockbroker Peel Hunt believes short-term disruption is inevitable as Dunkerton steadies the ship and starts to enact his recovery plans.

Forecasting a slump in adjusted pre-tax profit from £97m to £54.3m for the year to April 2019, recovering to £66.1m in 2020 and £75.7m in 2021, the broker says additional costs and a tough trading backdrop mean short-term estimates could come under pressure.

Investors should expect Dunkerton to cut the childrenswear range, increase short-lead product, reduce discounting, and return to a two-season model such as holding jackets for longer in the winter season.

This move is likely to entail some abortive costs, as well as a need to refresh product lines and invest in increasing the choice online and in the visual artistry of the stores.

‘For us, the key challenge is to reinvigorate the core Superdry proposition which has suffered from a lack of innovation stemming back over several seasons,’ argues Peel Hunt.

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