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Shares of Supergroup (LSE:SGP), parent of clothing retailer Superdry, lost roughly a third of their value on Friday after the company issued its second profit warning since February. This profit warning downgraded the company’s pre-tax profit for the year to April 29 to £43 million, after the warning in February had downgraded that figure to £50 million.
£2.5 million in lost profit has been attributed to a maths error regarding the company’s wholesale business. The company said a negative number had been mislabelled as a positive number during its accounting process. Also, a further £2 million of wholesale profit will be moved from the current reporting year to the the 2012-2013 financial year. Finally, the firm knocked off another £2 million attributable to product deliveries and management compensation.
The firm is attempting to regain credibility in light of its recent mistakes, and a new Chief Financial Officer, Shaun Wills, will start Monday. Supergroup hopes Wills will restore financial posterity to a firm that many believe is losing its luster following its initial public offering in 2010.
“We had put faith in the growth story but are placing our estimates and recommendation under review,” said a team of analysts at Singer Capital Markets.
“Management credibility has worn extremely thin. They are lucky that a new finance director starts on Monday and a new chief operating officer starts soon, said Nick Bubb, an independent retail analyst, adding that the accounting mistake was “calamitous.”
“We think today’s statement brings into question the long-term sustainability of profit growth if the brand is, as we believe, in decline,” said Numis Securities, an investment bank.
However, Supergroup’s CEO, Julian Dunkerton, remains optimistic for the future. Dunkerton noted that the company’s rivals had been slashing prices across the board in an effort to compete with Superdry and the firm’s other brands, while adding that profit margins should rise due to falling cotton prices.
“The market has long wondered if the bubble is about to burst – but there’s not much evidence of that. The Regent Street flagship store has shown that its is still a very strong proposition. But they’ve got to knuckle under and prove the market wrong,” said Bubb.
Company Spotlight
Supergroup is a fashion retailer of clothing and accessories under the brands Cult and Superdry, via retail stores, online, and wholesale.
References
↑ Company History and Overview
↑ Reuters
↑ BBC News
