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Supergroup: A special dividend after a strong year

George Salmon | 14 July 2016 | A A A
Supergroup: A special dividend after a strong year

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Superdry plc Ord GBP0.05

Sell: 274.50 | Buy: 276.00 | Change -9.00 (-3.18%)
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Supergroup, owners of the SuperDry label today released results for the year ended 30 April 2016. Revenues and profits increased by double-digit percentages and the group is proposing a special dividend in addition to the final year's payment. The shares were up 5.5% this morning.

On the comparable 52-week period increased 21.3% to £590.1m, with growth weighted towards the second half of the year. Within this, retail revenue increased by 24.5% to £415.9m, helped by Like-for like retail sales of +11.3% and the addition of 136,000 sq ft of new sales space (119,000 of which was in Europe). E-commerce now represents 23.1% of retail sales (2015: 18.2%) following a redesign of the website.

Underlying profit before tax increased 16.3% to £73.5m. Underlying gross margin rose 60 bps to 61.5% however underlying operating margins fell 50 bps to 12.6% due to the initial trading losses in key trading markets (the US and China).

A special dividend of 20p has been proposed. This is set to be paid to shareholders with the final dividend of 17p.

Over the last year, womenswear has represented the fastest growing sales category, and Supergroup will continue to focus on this opportunity, as well as expanding the ski, denim and footwear ranges.

Supergroup target improvements in the Wholesale division, which accounts for c. 30% of revenue. The group targets aligning the retail and wholesale divisions better, and improving their existing trade relationships by simplifying contracts.

The group will add a further 140-150k square feet of selling space this year, and capital spending will increase to £60-70m from £53.2m this year. Guidance is for gross margins to increase by up to 30 basis points.

Supergroup have a progressive dividend policy, and seek to pay an ordinary dividend that is covered 3-3.5x by earnings.

Our view:

SuperGroup has had a very successful FY2016 and have delivered double digit profit growth, despite start-up losses in the USA and China.

Fashion is intrinsically risky; the more fashionable a retailer is trying to be, the more risks it has to take that its customers will look at the clothes and shudder. Get it right though, and the frocks fly out of the shops at outrageous price tags.

When SuperGroup listed a few years ago, it quickly ran into growing pains as its infrastructure struggled to keep pace with demand. CEO and co-founder Julian Dunkerton handed over the reins to Euan Sutherland, an experienced international retail leader, in order to concentrate on the branding and design. James Holder, Mr Dunkerton's founding partner, will be focusing his efforts on design too, after moving into the SuperDesign Lab.

Execution now looks to becoming a strength, not a weakness for the group, with the only blot in the copybook being the lengthy turnaround of the US business, but even there, progress looks to be coming through. With strong growth in new space and the successful launch of the new premium price range in collaboration with actor and fashion icon, Idris Elba, SuperGroup looks well set to cope with the stronger comparatives ahead.

Following a successful roll-out into Europe, the Superdry brand has shown it can travel well and the business is still immature. Growth through new openings, or buying in franchisees should be capable for some time to come. So long as Mr Dunkerton keeps sending the right outfits down the catwalk.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.