Boardroom Battles And Profit Warnings: How Superdry Went From High Flyer To Contrarian Value Stock

14th May '19 by Ben Hobson

4 comments 5538 reads

On the first trading day of 2018, shares in the fashion retailer Superdry hit an all time high of just over £20. The fast-growing chain was brimming with confidence and there didn’t seem to be any major causes for concern. Yet 17 months later, the value of those shares had fallen by more than three-quarters and the company was in a mess.

A rapid run of events wreaked havoc on the business and its shareholders. From a picture of harmony and global ambition it was sucked into a spiralling trading slump. Its founder Julian Dunkerton, left the business and later fought his way back. But by then (and perhaps before) the damage had been done. Superdry’s market cap has fallen from £1.6 billion to just £370 million, and the recovery effort was on.

While all eyes are on whether Mr Dunkerton can re-find former glories and breathe life back into Superdry, there are some interesting observations about what has happened here. For a start, it’s been a case study on the corrosive effects of multiple profit warnings - and why it can pay for investors to get out of these kinds of troubled stocks as early as possible.

It’s also an example of how a stock’s quality, value and momentum interact with each other. In terms of investment profile, Superdry has made a rapid and well defined switch from being a High Flyer to a Contrarian share. Where once it looked like a pricey, fast moving growth stock, now it arguably resembles a value play. So depending on how you see it, there could be reasons to be cheerful about Superdry... even now.

When things go wrong

Ever since its IPO in March 2010, Superdry shares have had mixed reviews.

On one hand, it was touted as a profitable, fast-growing British fashion group with a lot to like as an investment. On the other, naysayers claimed its brand was a busted flush and that its young ‘influencer’ clientele had long gone, even before it floated.

Within a year of floating, the price had soared from 500p to more than 1800p. But that gain was wiped out over the next 12 months as the growth rate slowed and the company hit distribution problems. Then came the first profit warning.

In April 2012 Superdry had to admit that some of its profit forecasts were off the mark.…

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roddy10

14th May '19

I think there is an important issue that you have not dealt with - management change.
A business such as Superdry needs a passionate leader - not all management is 'by the numbers'. It may sound heresy but I think the market missed the internal loss of motivation at Superdry and the 'dash for growth' by attempting to put the Superdry brand on things that were outside its core area and pumping it into wholesale.

Cisk

Rarely do founders of Businesses make good leaders when these businesses have grown massively, as different skill sets are required to keep the business growing and focus becomes tiled towards logistics, processes and controls rather than outright creativity and product innovation.

Key is the team around Dunkerton as to whether this company will survive. Personally I think the brand has moved into the older generation territory- nothing wrong with that - but it needs to be managed as such and recognize this. So mid 40s dads who might have skirted with M&S now might prefer Superdry. This can still be a profitable market if the company wakes up to this.

MiserableJacktPotato

Personally, and I’m sure many others are thinking the same, I’ll wait for Dunkerton to get year end out the way and look to buy in, maybe even before results day and dribble in. I’ll probably even set my stop loss around 40% as I think there’s plenty of life left in Superdry as a brand.

I’ll probably learn a good lesson about hubris but my eyes are open to the wipeout risk

20th May '19

I agree re the need to have various skillsets as a business grows. But a 'logistics expert' or a 'manager of controls' is rarely going to inspire a company or customers.

An example of a leader who has, either directly or indirectly masters logistics, processes and controls is Jeff Bezos.

Re branding and target customers - it may not be a bad thing to aim for mid-40s dads. But the other way to consider that is that the brand focus drifted when Dunkerton left.

For consumer brands it is also worth considering who a brand uses for advertising, who it advertises to and who buys - eg luxury handbag brands often use young women and try to appear 'edgy' yet their biggest (in terms of spending power) customers may be a different demographic.

Boardroom battles and profit warnings: How Superdry went from high flyer to contrarian value stock

When things go wrong

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Ben Hobson

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