Although it is showing good retail sales growth, it is at a slower than hoped-for rate.

The iconic style brand Superdry (LON:SDRY) is battling away at its turnaround plan, while also looking to strengthen its balance sheet, so a round of fresh financing is being considered.

Operating in over 50 countries globally, the group has 219 physical stores and around 450 franchisees and licensees.

Through its distinct collections, defined by consumer style choices, the company considers that Its mission is to be the Number 1 sustainable style destination.

It designs affordable, premium quality clothing, accessories and footwear which are sold around the world.

The company has a clear strategy for delivering continued growth via a multi-channel approach combining stores, e-commerce, and wholesale.

After Christmas showing strong demand

In January the group stated that its brand recovery was back on track with strong demand in the pre-Christmas weeks at its stores, however its wholesaling side was some 5.2% weaker.

Against that it had to contend with expected macroeconomic hassles and founder and CEO Julian Dunkerton stated that he did not expect market conditions to become easier any time soon, even so he approached the year ahead with optimism.

South-Korea deal for cash

Well, that was in late January – since when the group has sorted out its financing pressures and arranged a $50m (£34m) deal out in Asia for the sale of the group’s intellectual property in the APAC region.

The net proceeds from the Sale will be used to increase the strength of the company’s balance sheet, boost liquidity, and fund its ongoing working capital requirements, including the implementation of a significant cost reduction programme.

The recovery plan is still underway

The late March announced deal mentioned that the company is also considering additional steps to further strengthen its balance sheet in connection with its turnaround programme, which is being delivered in a challenging market, which could include a potential equity issue.

In its latest Trading Statement, the group is now looking for its current year revenue to be in the range of £615m to £635m, up slightly from last year’s £609m and accordingly it has withdrawn its profit guidance to the market from previously expecting a ‘broadly break-even’ result.

Founder ready to pump in more cash

It states that there are more savings to be put into operation, while it is considering an equity raise of up to 20% in new capital.

Dunkerton has declared that he has confidence in the prospects for Superdry and that he will fully support and materially participate in such an equity issue.

“The Superdry brand continues to evolve but there is no doubt that the market conditions we face are challenging, compounded by the issues we have previously disclosed and are working to address in Wholesale. As a result, while we continue to deliver like-for-like growth in retail sales, we need to ensure our business is in the right shape to navigate these difficult times, which is why we are looking hard at our cost base.”

Analyst Opinion – a Buy worth 250p a share

Analyst Wayne Brown at Liberum Capital still rates the shares as a Buy but has halved his Target Price for the group’s shares from 500p down to just 250p – which is still significantly higher than the pre-statement price of 106.8p at which the company was capitalised at £87m.

His pre-tax expectation for the April year-end is for £614m sales and a loss of £12.0m (£21.9m profit).

For the coming year Brown is hopeful for some £622m of turnover and a bounce back to £20.3m profits, worth 18.9p per share in earnings.

Jumping forward the retail sector specialist estimates £645m sales, £43.3m profits and 40.3p of earnings per share, hence his Target Price aim.

The group’s shares fell 18% on the news to 86p.

The FTSE 100 reflected an indecision in markets on Thursday as the UK economy flatlined in February and investors digested the latest Federal Reserve minutes.

The FTSE 100 edged up just 0.2% points to 7,843 at the time of writing on Thursday. Tesco rose after releasing preliminary results, and housebuilders enjoyed broker upgrades.

From a macro perspective, investors were mulling over insights from the Federal Reserve and attempting to predict the next move in interest rates.

UK growth was dead flat in February, so the UK looks set to avoid recession in the near term – but its hardly an environment conducive to igniting animal spirits.

Inflation and rates considerations

US CPI inflation data yesterday was quickly followed by Federal Reserve minutes that provided little certainty to markets about the next move in interest rates.

“Minutes from the latest FOMC meeting didn’t signal a clear intention by the Federal Reserve to immediately stop hiking its key rate further or to lower it by the end of the year, despite acknowledging a material tightening of financial conditions,” said George Lagarias, Chief Economist at Mazars.

Lagarias continued to explain that while there wasn’t a clear path ahead, there was a general feeling we were nearing the end of the hiking cycle.

“However, we don’t think there’s a basis for immediate investor disappointment. Some policymakers are having second thoughts about further hikes, and we appear to be very close to the end of this rate hike cycle. One or two more rate hikes will not make a significant difference at this point,” Lagarias said.

The S&P 500 closed down 0.4% overnight and looked set to open modestly higher on Thursday.

In addition to concerns around central banks, investors will also be weighing the possibility of a US recession.

“The sceptre of recession in the world’s largest economy continues to loom in the near distance and could cloud sentiment for some time,” said AJ Bell investment director Russ Mould.

Tesco

Tesco’s preliminary results reflected the dour mood around the UK economy currently. Tesco’s revenue grew less than market expectations, and profit before tax halved compared to a year ago.

However, the reaction in Tesco shares suggested some investor saw a light at the end of the tunnel.

Housebuilders rose after HSBC analysts issued upgrades across the sector.

Of the FTSE 100 housebuilders, HSBC upgraded Persimmon to a ‘buy’ from hold with a 1,550p price target, Barratt Developments to a ‘buy’ from hold with a 570p price target, and Taylor Wimpey to a ‘buy’ from hold with a 150p price target.

HSBC raised Berkeley Group to ‘hold’ from reduce and issued a 4,000p price target.

Tesco missed market expectations for revenue growth in last year, but still managed to increase sales by 5.1% on a like-for-like basis. Profits sank as a result of lower margins due to the cost of living crisis.

Soaring rates of inflation and resultant wider cost of living crisis is a thorn in the side of major supermarkets as their customer’s spending power dwindles.

An over 2% rise in Tesco’s share price to 273p on Thursday reflects the extent economic concerns had already been factored into their shares. The selloff late last year took Tesco shares down to 200p.

While the top line displayed resilience, the impact of higher costs was clearly obvious in their operating profit. Profit before tax halved to $1bn from £2bn in FY 21/22.

Although total revenue rose, volumes fell and cost inflation eroded margins as Tesco wages a war of attrition against the discounters Aldi and Lidl. Adjusted operating profit fell 7.1% as Tesco’s average store worker wage rose to £11.02 per hour. 

“Tesco has seen profits take a knock as inflation means struggling customers are picking up fewer items while prices soar. At the same time, the grocery giant is investing heavily in its customer care while times are so tough. While the group is doing what it can to keep prices low, it’s not lost on consumers that grocery inflation remains one of the most painful areas of overall rising costs at the moment,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

“That’s where we’ve seen the rise of the discounters, which although much smaller, have forced the main players to up their game. Aldi price matches and other similar campaigns are a stark reminder of how stiff competition is. By some trains of thinking, if you’re having to name your competitor, they’ve already won.”

Wholesaler Booker was a stand out performer for Tesco with a 12% increase in like-for-like sales. Tesco bank adjusted operating profit slipped 18% due to provisions for an uncertain economic outlook.

Tesco proposed a final dividend of 7.05p to total a full year dividend of 10.90p. This was in line with last year’s dividend.