Superdry plc: FY24 Half Year Results

26 January 2024

Superdry Plc

Half Year Results for the 26-week period ending 28 October 2023

In line with December trading statement, challenging H1, but strong progress on cost and inventory reduction programmes.

Superdry plc (“Superdry” or the “Group”), today announces its Half Year Results covering the 26-week period to 28 October 2023 ("H1 24") and an update on current trading covering the 12-week period to 20 January 2024.

• Group Revenue down 23.5% on prior year and impacted by the challenging consumer retail market, unseasonal weather, as well as the underperformance of our Wholesale segment.
• Statutory profit before tax of £3.3m (H1 23: £(17.7)m loss) due principally to the sale of Intellectual Property in the APAC region, offset partially by a non-cash impairment charge of £10.2m.
• Softer revenue performance has impacted underlying profitability and resulted in an Adjusted loss before tax of £(25.3)m (H1 23: £(13.6)m).
• Progress on turnaround programme designed to position Superdry for long-term success and which focuses on improving efficiency, driving simplification, and establishing a target operating model.
• Work to rightsize our operating cost base set to deliver in excess of £40m in savings this financial year, ahead of our initially stated target of £35m and with more than £20m achieved in H1, as we continue to prioritise driving forward our cost reduction agenda.
• HY 24 inventories of £130.9m, down 24.2% on the same period last year with FY 24 closing inventory projected to reach c.7m units, down from a peak of c.18.9m units at FY 19.
• Further action taken to support the balance sheet with funds received, post half-year end, from IP joint venture and disposal of assets in South Asian region for £28.3m, net of fees and taxes.
• Secondary lending facility agreed in August for up to £25m with Hilco Capital. Cash management remains a critical focus area for the business and we retain a number of mitigating actions to improve liquidity if required including, but not limited to, additional brand rights sales in non-core territories and the clearance of aged inventory at accelerated rates.
• Milder weather and heavy discounting across the sector impacted Christmas trading and, consistent with our December update, we expect full year results to reflect the more challenging environment seen to-date.

Julian Dunkerton, Founder and Chief Executive Officer, said:

“This has clearly been a difficult period for Superdry. A challenging consumer retail market, set against a backdrop of macroeconomic uncertainty and some remarkably unseasonal weather conditions have all combined to weaken the financial performance of the Group. These macro and external factors have been further exacerbated by the underperformance of our Wholesale segment. Whilst, to some extent, this was expected due to the decision to exit our US operations and the sale of the brand rights in non-core territories, the segment continues to prove challenging.

Despite the near-term difficulties, we have made significant operational strides over the half year as part of our ongoing turnaround. Our cost savings programme remains on track and our inventory reduction programme is progressing well. We have also taken further action to support the balance sheet with a secondary lending facility agreed with Hilco Capital in August, and the agreement for a joint venture and disposal in South Asia, demonstrating the continuing attractiveness of the brand in foreign markets. 

Our efforts continue to focus on rightsizing the cost base and creating an operating model suitable for the needs of the organisation over the longer-term. Christmas trading proved challenging, and we do not expect market conditions to get any easier in the near-term. However, I firmly believe we are taking the right steps for the business and the brand, to return Superdry to profitability.”

H1 24 Financial Overview

• Statutory profit before tax of £3.3m (H1 23: £(17.7)m loss) includes £36.3m from the disposal of brand rights in the APAC region, which was formally approved by shareholders in May, offset partially by a non-cash impairment charge of £10.2m against store assets.
• Group Revenue declined 23.5% on the same period last year, with Retail down 13.1% and Wholesale down 41.1%.
• Ecommerce sales down 19.1% and impacted by the challenging trading environment, warmer weather, as well as a profit focused reduction in spend on digital marketing.
• Store sales performed more robustly but were still down 9.9% and impacted by the unseasonal weather and timing of promotions.
• Wholesale sales down 41.1% as the segment continues to underperform expectations and is impacted by a combination of factors that include declining volumes and structural changes within the broader market, but also strategic decisions taken by the business, such as the decision to exit our US operations, brand rights sales and continued clearance activity.  
• Gross margin improved by 1.9 percentage points, largely driven by changing channel mix and price inflation, offset by markdown participation to clear aged stock.
• Total operating costs down 16.1% with significant reductions across selling and distribution and central costs, further validating our ongoing efforts to rightsize our operating cost base.
• Adjusted loss before tax increased to £(25.3)m (H1 23: £(13.6)m), reflecting the weaker revenue performance, a non-repeating FX gain in the prior year and increased finance costs of £9.3m (H1 23: £2.6m).
• Working capital reduced by £36.6m when compared to the same period last year. This was driven by our stock clearance programme, with inventories reducing by 24.2% to £130.9m over the period, combined with a reduction in both payables and receivables, reflecting the contraction in revenues, particularly within Wholesale.
• Net debt was £(28.9)m, marginally up on our closing FY 23 figure of £(25.6)m, but an improvement on the same period last year (H1 23: £(38.0)m) and reflects the completion of the APAC transaction and equity raise, offset by movements in working capital, lease repayments and increased finance costs.

Current Trading (12 weeks to 20 January 2024)

The table below shows the revenue change for the 12-week period to the 20 January 2024 when compared to the same period in the prior year. Overall performance in the 12 weeks since the period end has remained challenging, albeit there have been some more encouraging trends during the recent cold weather period.

• Whilst Superdry’s longstanding strength in outerwear resulted in some encouraging sales during recent spells of colder weather, the milder autumn that persisted through the peak Christmas trading period has negatively impacted Group Revenue, which is down 13.7%. 
• Retail is down 10.2% on the same period last year. As documented in recently released figures from the Office for National Statistics (“ONS”), December saw a sharp drop in UK retail sales and the largest since the UK was in Covid lockdown, with consumers taking advantage of Black Friday promotions to complete their holiday season shopping earlier. These challenging market conditions, resulting heavy discounting across the sector and milder weather have all combined to impact Retail performance, with Stores down 10.4% and Ecommerce down 10.1%.
• Wholesale is down 38.0% in the 12 weeks since the half-year, with performance broadly in line with H1 as the segment continues to suffer from declining volumes and structural changes within the broader market, as well as strategic decisions taken by the business.

Outlook

The consumer retail market remains challenging and unpredictable, and sales performance has not been helped by the extreme weather events of the summer being followed by one of the warmest autumn seasons on record, which persisted through the peak Christmas trading period. We are mindful of these external and macro factors and as outlined as part of our December trading statement we expect full year profitability to be impacted by the weaker trading we have seen to-date, and internal expectations remain consistent with that view. As a management team, we continue to focus on the delivery of our cost efficiency programme and further opportunities to reduce the fixed cost base of the business, with in excess of £40m of savings due to be realised within the year.

Notes

1. ‘Adjusted’, ‘Adjusting’, Net working capital and ‘Net (Debt)/Cash’ are used as alternative performance measures (‘APMs’). Definition of APMs and how they are calculated are disclosed in Note 22. ‘Net working capital’ has been reconciled within the Finance Review.
2. Retail is the combination of our Stores and Ecommerce segments.

Market Briefing

A webcast for investors will be held today starting at 9:30am GMT, followed by a Q&A with management. If you would like to register, please go to https://www.investormeetcompany.com/superdry-plc/register.

For further information:

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Notes to Editors

Our mission is to be the “#1 Premium Sustainable Style Destination” through our distinct collections, defined by consumer style choices. We design affordable, premium quality clothing, accessories and footwear which are sold around the world. We have a clear strategy for delivering growth via a multi-channel approach combining Stores, Ecommerce, and Wholesale. Superdry has 216 physical stores and around 369 franchisees and licensees. We operate in 48 countries and have over 3,350 colleagues globally.

Cautionary Statement

This announcement contains certain forward-looking statements with respect to the financial condition and operational results of Superdry Plc. These statements and forecasts involve risk, uncertainty, and assumptions because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements are made only as at the date of this announcement. Nothing in this announcement should be construed as a profit forecast. Except as required by law, Superdry Plc has no obligation to update the forward-looking statements or to correct any inaccuracies therein.

CEO Review

The first half of the year has been another period of exceptional transformation and development for Superdry. Despite the near-term challenges faced by the Group, we have taken a number of steps designed to recapitalise and reshape the organisation, as we begin to create an operating model more suited to the needs of the business over the longer-term and return Superdry to profitability.

Whilst financial performance has proven softer than anticipated, this has clearly been impacted by a number of external and macro factors, as well as some of the strategic decisions we have taken as part of our turnaround programme, such as our continued clearance of aged stock. Inventory reduction has been a critical area of focus and we have made great progress, with forecast inventory for FY 24 approximately 7m units, down from a peak of around 18.9m units only five years ago. This period of elevated clearance as we continue to reduce our stock holding to more efficient levels has invariably presented challenges, but we are confident in the steps we are taking to align inventory volumes with the ongoing requirements of the business.

Navigating our turnaround has also come amid an exceptionally challenging macroeconomic and consumer retail environment, as well as some unseasonal weather, both of which have combined to impact performance. The premium consumer retail market continues to prove challenging, whilst the extreme weather events of the summer have been followed by one of the warmest autumn seasons on record as we saw a slower uptake of our Autumn / Winter range with consumers delaying warm weather clothing purchases.

The result is that Group Revenue for the first half is down 23.5%, at £219.8m. This is driven by some softer performance from our Retail segment, but also the continued underperformance of our Wholesale division, which is down 41.1%. The stabilisation of the core business and revitalisation of routes to market within Wholesale is ongoing but, as messaged at our FY 23 results, this transformation is not a quick fix, and our efforts here remain a work in progress. It is also worth noting that a portion of the decline seen within Wholesale can be attributed to strategic decisions, such as our decision to exit our US operations and the sale of intellectual property in non-core territories, as well as differences in the timing of stock intake and dispatches which can skew year-on-year comparisons, but nevertheless, it remains a disappointing outturn.

Our Retail segment proved more robust in the first half but has also underperformed expectations and was down 13.1%, with Stores and Ecommerce down 9.9% and 19.1%, respectively. Both our Retail channels have been impacted by the previously mentioned external and macro factors, but also by some heavy discounting from competitors. The adjusted loss before tax of £(25.3)m reflects the weaker trading performance detailed above, whilst our statutory profit before tax of £3.3m includes £36.3m from the APAC brand rights transaction, which was formally approved by shareholders in May.

Cost efficiency programme

Despite the softer financial performance, a significant success of the first half has been our efforts to reduce costs and I am pleased to report we now expect in excess of £40m in savings to be realised within the year, ahead of our initially stated target of £35m, and with more than £20m achieved in H1.

A critical area of focus has been our store strategy, which is centred around exiting or regearing loss-making stores, whilst seeking to improve the profitability of our remaining store estate. During H1 we closed 12 stores, and we will continue to assess further opportunities for strategic store closures as they arise. These efforts and initiatives have been supported by programmes to better optimise store space and improve profitability, such as through our recently trialled vintage concessions.

Further to our work on stores, our critical procurement focus on the renegotiation and mitigation of cost increases on new and existing contracts is helping to drive forward our cost reduction agenda. These efforts have been supported by incremental savings we are making across our logistics network, which are targeted non-volume related cost savings, that focus on distribution operations across order fulfilment and customer returns management.

Our cost reduction programme marks a significant milestone as we strategically realign and rightsize our cost base with the requirements and shape of the organisation moving forward. However, when considering such progress, it is important to recognise that this activity does not limit our sustainability ambitions, product quality, or customer experience. We continue to evaluate strategic opportunities to further reduce our fixed cost base.

Simplifying the business 

The steps we have taken to reduce costs and drive efficiencies have been complemented by actions to simplify Superdry and strengthen our balance sheet, with our efforts in this area centred around the sale of our intellectual property in non-core territories. Where Superdry has traditionally adopted more conventional routes to market around the world, this approach is changing, with sales of intellectual property creating a simpler operating model as we get our product in front of the consumer in a more efficient manner. Such activity also allows management to focus on growing the brand and increasing sales in regions where we have strongest expertise, as well as having the much needed effect of supporting our strategic recapitalisation.

In May 2023, we completed our first IP sale as shareholders approved the disposal of assets in the Asia Pacific region to our strategic partner, Cowell Fashion Company, for a consideration of £36.3m. More recently, in October 2023, we announced a joint venture and agreement for the disposal of assets in the South Asian region to our franchise partner in India, Reliance Brands. Having partnered with Reliance since 2012, they are a business we know well, and I am thoroughly excited by the opportunity that the growing Indian economy and population of affluent shoppers present. After the investment in the joint venture vehicle we received net proceeds, post the half-year end, of £28.3m.

Our strategic recapitalisation has also been supported by a 19.1% equity raise, completed in May 2023, as well as a secondary lending facility agreed with Hilco Capital, as announced in August 2023. The Hilco facility unlocks up to a further £25m of borrowing to help mitigate the headroom cap on our Bantry Bay agreement and the flexibility to access additional capital has been beneficial for the business during the Autumn / Winter buying season, the peak of our working capital cycle.

Whilst our efforts here have been significant, cash and liquidity management remain a critical area of focus as we go into 2024 and we will continue to assess further opportunities to simplify our operating model and provide further liquidity for the business as and when they arise.

Building the operating model of the future

Underpinning everything we are doing at Superdry is our desire to create an operating model that fits the profile of the business going forward; forging the Superdry of the future.

Central to this is the work we are doing on product, with our product first strategy, as well as efforts to improve the customer experience, both instore and online. We continue to put our product at the heart of everything we do, celebrating our heritage, whilst driving innovation. Our reduced seasonal option counts, which have come down from over 4,400 at their peak to around 2,200, are enabling greater product focus, and we are