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Superdry PLC

Superdry PLC Difficult trading period impacted by unseasonably warm weather

Superdry PLC (LON:SDRY), today announced interim results for the 26 weeks ended 27 October 2018

Key Financial Highlights1

· Global brand revenue2 up 6.4% to £831.8m (1H18: £781.6m)

· Group revenue up 3.1% to £414.6m (1H18: £402.0m)

· Underlying3 profit before income tax down 49.0% to £12.9m (1H18: £25.3m),

· Statutory profit before income tax up 190.1% to £26.4m (1H18: £9.1m), reflecting the fair value movement on forward exchange contracts

· Underlying basic earnings per share 11.9p (1H18: 25.8p); basic earnings per share 24.7p (1H18: 9.7p)

· Interim dividend held at 9.3p (1H18: 9.3p)

Current trading and outlook

Unseasonably warm weather has continued through November and into December (Superdry’s two biggest trading months in the year) across all of our key markets. Given Superdry’s reliance on cold weather related product continues and a lack of innovation in some of its core categories, sales have remained under pressure despite a strong performance in the Black Friday week. This has resulted in an adverse profit impact of around £11m in November and the Company expects a potentially similar profit impact in December if trading conditions do not improve.

There is still considerable uncertainty in terms of the weather outlook, the changing shape of consumer behaviour in the peak trading period and the impact of wider economic and political uncertainty. Reflecting those impacts and the uncertainty in the remainder of the financial year the Company expects underlying profit before tax to be in the range of £55m to £70m.

Operational and Strategic Update: Intensifying Superdry’s comprehensive transformation

The challenges already being addressed by Superdry in terms of product mix and ranging were highlighted in the first half, with the unseasonably warm weather and a weakening, discount-driven consumer economy suppressing demand for the cold-weather clothing that has traditionally underpinned Superdry’s offer to consumers. Our focus is on re-energising product and evolving the brand, a process that started in April 2018.

The comprehensive transformation programme underway builds on the underlying strengths of the brand and the operational capability which has been established over the last four years and which has been intensified around the following key elements which now include reviews of the store portfolio and the cost structure of the Company.

Product: determined focus on fundamental repositioning of product

· 18-month innovation and diversification programme to rebalance options across categories

· Re-energising core product with greater innovation

· Increasing participation from newer, fast-growing categories

· Moving into untapped categories:

o Development of Kidswear range, to be launched for autumn/winter 2019

o Development of licensing programme to deliver an incremental £10m pa royalty margin benefit by FY22

· Roll-out of our first 100% organic cotton products – with aim to be fully organic in cotton by 2040

Brand: strengthening Superdry’s brand positioning

· Evolving the brand with upweighted, targeted brand investment, giving customers additional reasons to buy Superdry

· Retaining brand-advocate customers, while converting occasional and new consumers

· Supercharging global marketing communications

· Refreshed social media approach, underpinned by campaigning stance

Channels: accelerated investment on capital light channels to increase global reach and drive sales growth

· Ongoing investment into the growth of owned, B2B and partner Ecommerce sites to service new markets and customer-centric mobile platforms

· Significant opportunities for Wholesale-led growth in the US and China, delivering annual global brand revenue value of £400m by FY22

Margin: driving further efficiencies through sourcing, supply chain and automation

· Sourcing: acceleration of sourcing from lower-cost, same quality Chinese producers

· Automation: benefitting from efficiency savings from partners

· Global margin opportunity with licensing in beauty, footwear, watches, eyewear and accessories

Cost structure: efficiency programme targeting gross cost savings5 of at least £50m by FY22

· Comprehensive cost efficiency review

· Review of flexible store portfolio to consider closures, right-sizing, relocations and renegotiation of rent, to be completed by March 2019

· Leveraging the digital transformation to drive incremental efficiency

· Capex spend reduced to £35-40m with focus on digital investments

Euan Sutherland, Superdry Chief Executive Officer, said:

“Superdry had a difficult first half, impacted by unseasonably warm weather across our major markets, a consumer economy that is increasingly discount driven and the issues we are addressing in product mix and range.

“In the spring of this year we started an 18-month product innovation and diversification programme. This will increase choice for consumers around the world and address the current over-reliance on jackets and sweats. We are accelerating into new categories and are particularly excited by the upcoming launch of Superdry Kids. At the same time we are evolving the brand through targeted investment. In everything we do we will build on Superdry’s heritage of offering exceptional quality and design detail at outstanding value.

“Superdry is a strong brand and has strong operational capabilities. We are focused on an intensified transformation programme to reset the business and address the legacy issues we face, particularly in product mix and range.

“Superdry is responding to its internal challenges as well as a changing world and changing consumers. Our comprehensive transformation will ensure Superdry is well positioned as we optimise our routes to market and make our business more efficient. We are confident that our transformation programme combined with the underlying operational strengths of the business will deliver a return to higher levels of growth and profitability while realising geographic expansion opportunities and leveraging our multi-channel operating model to serve customers in whichever way suits them best.”

Business Performance

26 weeks to 27 October 2018 (“1H19″)

26 weeks to 28 October 2017 (“1H18″)

Global Brand revenue2 (£m) (exc. China)

831.8

781.6

Total Group revenue (£m)

414.6

402.0

Total Retail revenue (£m)

242.8

242.7

Net new Retail space added (sq.ft. ‘000s)

19

68

Average Retail space (sq.ft. ‘000s)

1,186

1,084

Number of stores at period end:

Owned

249

233

Franchised & Licensed

446

372

Online participation (%) (as % of Total Retail revenue)

26.9

25.2

Wholesale revenue (£m)

171.8

159.3

Gross margin (%)

56.4

57.1

Underlying3 operating margin (%)

3.6

6.7

Underlying3 basic EPS (p)

11.9

25.8

Operating cash flow (£m)

(10.8)

19.4

Net cash3 position

19.2

33.8

 

Statutory reporting

26 weeks to 27 October 2018 (“1H19″)

26 weeks to 28 October 2017 (“1H18″)

Items excluded from underlying results (£m)

13.5

(16.2)

Profit before tax (£m)

26.4

9.1

Basic earnings per share (p)

24.7

9.7

 

Notes:

1. Foreign currency sales are translated at the average rate for the month in which they were made.

2. Global Brand revenue represents the equivalent value of the Group revenue at the prices paid by customers. It is calculated by uplifting all revenues by applicable sales tax rates and uplifting revenues within our Wholesale channel by a factor representing the applicable mark-up from wholesale to consumer prices. Global Brand revenue is stated excluding China, but including sales from licensed territories and product categories. As a consequence, 1H18 figure has been restated (previously disclosed as £756.3m).

3. ‘Underlying’, ‘Net cash’ and ‘Global Brand revenue’ are used as alternative performance measures (‘APM’). Definition of APMs and how they are calculated are included in note 19.

4. The trading comparatives for each quarter of FY19 are detailed below (unaudited):

Q1 19

£m

Q1 18

£m

YOY

Q2 19

£m

Q2 18

£m

YOY

1H19

£m

1H18

£m

YOY

Global Brand revenue (exc. China)

299.2

297.9*

0.4%

532.6

483.7*

10.1%

831.8

781.6*

6.4%

Global Brand revenue (inc. China)

305.1

301.3*

1.3%

545.1

490.4*

11.2%

850.2

791.7*

7.4%

Group revenue

165.5

166.4

(0.5%)

249.1

235.6

5.7%

414.6

402.0

3.1%

Channel revenue

Wholesale

48.2

50.1

(3.8%)

123.6

109.2

13.2%

171.8

159.3

7.8%

Ecommerce

28.7

26.9

6.7%

36.7

34.3

7.0%

65.4

61.2

6.9%

Store

88.6

89.4

(0.9%)

88.8

92.1

(3.6%)

177.4

181.5

(2.3%)

Average retail space (‘000’s sq. ft.)

1,184

1,067

11.0%

1,188

1,100

8.0%

1,186

1,084

9.4%

* FY18 Q1/Q2/1H figures restated to include sales from licensed territories and product categories and, where relevant, sales in China.

5. ‘Gross cost savings’ represent savings in Superdry’s selling, general and administrative costs (which totalled £429.4m in FY18). Net cost savings, after allowing for one-off costs and any lost contribution as a result of store closure not otherwise captured by channel shift, will be lower.