Members of my family are, but I am not, particularly concerned with sustainability – but then I can defend my stance (if I have to) by noting my senior years, meaning I have not got many still left to go, compared to them.
However, I have to say that I was impressed by the Superdry (LON:SDRY) commitment to sustainability and driving it through its product lines by significant contact with its suppliers as it urges them to be organic.
A very strong commitment to sustainability
Last Friday’s announcement of the final results for the year to end April noted very clearly that:
“Our mission is ‘To be the #1 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 continued growth via a multi-channel approach combining Stores, Ecommerce, and Wholesale.”
Examples of the way it looks to drive its sustainability focus in “underpinning everything we do” are shown by the fact that 47% of the products that it bought for sale in its Autumn/Winter 2021 and Spring/Summer 2022 collections were made of sustainable product, compared to just 33% for the previous year.
Of the products that it sold in the 2022 full year, sustainables were some 46% against 35% previously.
For Superdry sustainability continued to sit at the heart of its business, especially in its sourcing.
Cotton seeds and recycled bottles
It has a target of converting 20,000 farmers in India to organic practices and using 100% organic cotton in its garments by 2025.
As at the end of FY22, it had invested in training to convert 7,508 farmers, up from 5,684 last year and in the process donated over 65m organic cotton seeds.
For its Spring/Summer 2022 collection 99% of its swimwear was converted to recycled materials, with50.4m recycled bottles having been used to produce both its Spring/Summer 2022 swimwear and also in the company’s Autumn/Winter 2021 and Spring/Summer 2022 range of outerwear jacket fill.
City Reaction – is it sustainable?
After the £93m capitalised group’s results were published there were many observers who commented upon whether the company itself had any sustainability.
Even so the group’s shares responded with an 11% jump in its share price to close at 114p.
In the last year or so the group’s shares saw a peak last November at 330p but they subsequently traded down to a 96p low, just two weeks ago.
Not a straight line
Like businesses everywhere Superdry has had its ups and downs.
Julian Dunkerton built the business up from a Cheltenham market stall to getting his stores group quoted in 2010. The bubble was burst with a profit warning in 2012 alongside a suspension of its store opening programme.
Dunkerton left the board in late 2014 and two years later sold 4m shares at £12 each, then leaving him as the biggest holder with a 27% stake in the business.
By 2019 he declared openly that he did not like the way the group was being run, without him on the board.
He won his seat back on the board while fellow directors resigned.
His mission was ‘to reset the brand’s focus on design and quality’.
From an interim CEO position, he was six months later promoted to that post permanently, but sales were falling due to his decision to minimise promotions, dropping in-store discounts while focussing upon full-price sales.
Then Covid-19 happened in Spring 2020 and the severe fall in sales revenues needed drastic action.
The 2021 trading year saw takings fall 21% to £556m, but with the group going into a smaller loss of £36.7m (loss £166.9m in 2020).
Overall, the group’s mission today is ‘to inspire and engage style-obsessed consumers, while leaving a positive environmental legacy.’
The recent results – still a going concern
The full year to end April saw sales up 9.6% at £609.6m, with the adjusted pre-tax loss of £12.6m in 2021 being replaced by a much healthier £21.9m profit, boosting earnings from a loss of 19.4p to a plus 36.3p per share.
The group’s asset backed lending facility runs out in January next year, so there are ongoing discussions to refine and renew the position.
Thoughts that it may have problems continuing as a ‘going concern’ resurfaced but have been subsequently played down.
CEO Julian Dunkerton, stated that:
“These are exceptional times for retail and for the economy more generally, and like all brands we’re having to work harder than ever to drive performance. Against that backdrop, I am pleased that we managed to return the business to full-year profit, driven by increased full price sales, whilst also making strong strategic progress. I’m proud of the strides our team has made, delivering great product while also making a step-change in our social and digital capabilities and real progress towards our sustainability objectives.
“Superdry is a premium, affordable, brand, which should mean we are well-positioned as customers think more carefully about their purchases. That said, given the current challenging conditions, we continue to run the business prudently while remaining focused on delivering our strategic goals.”
With the results the group posted details of the 22-week period to 1 October showing sales had improved another 7%, while also noting that there were sector-wide trends of traffic slowly moving away from online back to store. Encouragingly the group’s wholesale revenue has increased year-on-year.
Despite the sales increase, it is apparent that margins are a lot tighter, so the group may only make between £10m to £20m for the adjusted pre-tax profits to end April 2023.
Analysts Opinion – 500p Target Price
At Liberum Capital, broker to the group, their analyst Wayne Brown is rating the shares as a Buy, with a Target Price of 500p a share.
His estimates for the current year to end April 2023 are for sales of £652m (£610m) a dip in profits to £16.3m (£21.9m), generating earnings of 15.1p (36.3p) and paying a resumed dividend of 5.0p per share (nil).
Already his figures suggest sales of £698m next year, with £26.3m profits, 24.5p earnings and a useful 8.2p per share in dividend.
Further out he is anticipating £748m sales, £41.1m profits, 38.2p earnings and a 12.7p dividend.
His Target Price, based upon his estimates, does not look so outlandish.
Conclusion – a potential doubling of price?
Last week’s results clearly show that Julian Dunkerton has got firmer control of Superdry’s reins and is determined to return the group to trade around its former glories.
The iconic brand, which is sold to 157 countries globally, is known the world over and with ‘sustainability’ as its mantra going forward it is a fair bet, facility permitting, that he will deliver again, which will be glorious news for its shares, now at just 114p.
The AGM is due at the end of October, while the pre-close trading Update for the first half-year will be declared in November, giving a few more weeks of cheap buying of the group’s shares.
A 500p Target Price may be too far away for most investors but a doubling in price over the next year is quite feasible.
