A Fool holds his hands up and apologises.
Just occasionally there is a share that you can't, for the life of you, figure out. Its siren calls tempt you, with promises of ballooning profits and a rocketing share price. When you are drawn in, it promptly takes you for everything you've got.
That share, for me, is SuperGroup (LSE: SGP). I have to admit that I got this company completely and utterly wrong.
Optimism and momentum
The thing is, in these days of euro crises and the double-dip recession, it is getting increasingly difficult to find British companies that are growing rapidly and consistently. If you do find them, they tend to be priced at a hefty premium.
SuperGroup, along with high-fliers such as ARM Holdings (LSE: ARM) and ASOS (LSE: ASC), is one of very few companies that has been growing at an astonishing rate. In 2010 it grew profits by close to 90%. Around this time the company was buzzing, and optimism and momentum drove the share price ever upwards, hitting a high of 1,800p in early 2011 -- nearly quadruple the float price of 500p.
Nothing to worry about?
Then in March 2011, at the height of the bull run, operations director Diane Savory announced that she was quitting the firm. At the time I took this news with a shrug of the shoulders -- I was confident the departure of one executive would make little difference to the success of the company. How wrong I was...
In a fast-growing company such as SuperGroup, the role of operations director is absolutely critical. When a company is going through so much change, it is crucial that the management stays on top of everyday issues such as providing the right quantity, quality and size of stock to the rapidly expanding network of stores. It might sound trivial, but it isn't.
Diane Savory was one of the longest-serving executives at SuperGroup, having worked at the business for 20 years, and she was a key architect of the fashion group's rapid rise. She was also, importantly, a safe pair of hands.
I think it is more than coincidence that, as soon as she left, the wheels starting falling off.
The first mistake
The first mistake was made in May of last year, when the retailer failed to get enough summer clothing into the stores as Britain went through an early heatwave, causing the shares to slump.
Then, in October 2011, the company had problems with its distribution system, leading to shops getting too little stock and the wrong size stock.
This bad news had driven the company's share price to an all time low of 440p in November 2011. But then the shares started to recover, and were further boosted by an encouraging Christmas trading statement that included a jump in like-for-like sales.
At this stage I was still willing to give SuperGroup the benefit of the doubt, and wrote a bullish piece on them in January 2012. After all, the company was now on an estimated forward price-to-earnings (P/E) ratio of just 11, and surely there couldn't be any more slip-ups?
The last straw
Wrong again! In February, came a profit warning, followed by another in April. The April warning really was the last straw. Not only were there yet more stock management problems, but there were "arithmetic errors" in the accounts.
By this stage, investors, myself included, had had enough.
Recently I heard the news that, finally, the management team is being beefed up: Susanne Given, a former managing director at TK Maxx, has been appointed to the newly created role of chief operating officer, and Shaun Wills, formerly of Habitat, has been appointed chief financial officer.
Too little, too late
Well, I'm sorry SuperGroup, but that's a whole year too late. It's been a year when the company has betrayed the confidence of its investors. Surely, no-one now believes in the fashion retailer as a serious long-term investment.
In every business, indeed in every job, you need to plan, and then you need to execute. SuperGroup's plans were impressive, and attractive to investors. But their execution was nothing short of abysmal, leading investors to lose faith in what could have been -- indeed, what should have been -- a great growth story.
I should have heeded the warning signs much earlier. You can have the greatest brand in the world, but if you can't get the right product into stores in time, and you can't even do your own accounts correctly, something is seriously wrong. SuperGroup is now a share to avoid, because, quite simply, you can't invest in incompetence.
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> Prabhat no longer owns shares in SuperGroup.