Superdry – this really is an excellent recovery prospect

With the return of its founder as CEO, there could be a recovery on the cards at fashion label Superdry, argues Mark Watson-Mitchell. 

I may not agree with his views on Brexit, but I certainly support Julian Dunkerton in his efforts to get Superdry (LON:SDRY) back on the right track again.

Dunkerton is reported to have pumped £1m into the People’s Vote campaign for a second Brexit referendum, while I am still waiting for the voting majority to get what they convincingly decided and demanded.

But politics aside – Dunkerton is a man to follow as he is getting the fashion brand back into shape.

The history of the company goes way back to 1985 when Dunkerton and Ian Hibbs set up Cult Clothing in Cheltenham. Then they were selling off their market stalls. He later met James Holder, who then had a skatewear brand called Bench.

In 2003 they joined together to set up the Japanese-influenced Superdry label and opened their first store in Covent Garden a year later.

Six years later the company went public and its shares were placed at 500p each. They subsequently peaked seven years later at 2,000p.

But along the way the company had issued a number of profit warnings, with its shares falling in reaction.

He stepped down as CEO in 2014 and was replaced by Euan Sutherland, the former Co-Op boss.

In February 2016 Dunkerton sold 4m shares at 1,200p each, to help pay off divorce commitments.

However, by April this year he was not at all convinced that Sutherland and his Board colleagues were pointing the group in the right direction. He organised a bit of a culling, which resulted in the departure of Sutherland and six of the company’s directors.

Dunkerton took over as ‘interim’ CEO and has since then been very active in reorganising the brand’s operations. He has now taken on the role on a permanent basis until the end of his contract in April 2021.

He cancelled the launch of a Superdry children’s wear range, which was not considered ‘cool’ by its historic customers.

He also reduced significantly the almost continual reductions and discounting that had been taking place in its goods. That obviously will have impacted sales figures, but Dunkerton defends that move by stating that retail margins have improved due to this measure.

Today Superdry is a global brand, obsessed with design, quality and fit and committed to relentless innovation. It designs affordable, premium quality clothing, accessories and footwear which are sold around the world in some 65 countries.

Under its Superdry brand the company offers a range of products, including t-shirts, polo shirts, hoodies and sweaters, joggers, tops, dresses, jackets, shirts, footwear, bags and other accessories.

The company states that,“We have a unique purpose to help our consumers feel amazing through wearing our clothes.”

The group’s strategy is clearly set upon delivering continued growth through its multi-channel approach, combining e-commerce, wholesale and by operating its own stores.

The recovery of Superdry is a two-year exercise and I do feel that Dunkerton is back where he belongs and spearheading its corporate rebirth.

Two weeks ago, the company issued a trading statement for the first half of the current year. For the 26 weeks to 26 October it indicated that group revenue was down 11.3% at £367.8m, with an 11.7% fall in store sales at £157.3m, a 10.5% easing in e-commerce at £57.9m, and an 11.2% fall at £152.6m in wholesale.

However, the retail store margin had improved from 68.2% to 71.4% – which bears out what Dunkerton suggested. That 320-basis points increase is actually quite impressive.

The actual interim figures will be published on Thursday 12 December, when I expect a lot more detail being given about the first six months’ various measures, as well as predictions of where Superdry will be going in the second half and then into 2020 and beyond.

I do believe that Dunkerton will be leading the company back into long term growth.

After last year’s £85.4m loss on the back of £872m of group sales revenue I am holding back in seeking out any brokers’ estimates until the interim announcement and further consideration is over.

But I hasten to inform investors getting in for the recovery ride, that Julian Dunkerton has 15,172,105 shares representing 18.5% of the group’s 82,000,981 issued share capital. James Holder continues to own 7.91% of the equity.

Institutional holders include Standard Life Investments (15.7%), Investec Asset Management (10.1%), Fidelity Management & Research (5.88%), Merian Global Investors (4.99%), Schroder Investment Management (4.97%), Artemis Investment Management (4.60%), and BlackRock Investment Management (3.97%).

Also, of note is that Allan Gray, Africa’s largest privately-owned investment management company, which is focused on generating long-term wealth for its investors, owns 3,246,891 shares (3.96%).

The shares, at 454p, value the group at just over £372m. I rate Dunkerton and consider that he really does have the ability, the drive and the personal interest in getting Superdry both profitable and progressing again.

I now set a 600p target price by the end of 2020.