The fashion retailer's shares have nosedived, but could we have seen it coming?
For those who haven't yet heard it, SuperGroup (LSE: SGP), the owner of the Superdry fashion brand, is in deep trouble.
In February, a profit warning led to a slide in the share price, and that was followed this week by the bizarre revelation that the bean-counters had done their sums wrong, and things are actually considerably worse than feared.
The latest was accompanied by news of stock management problems causing a further shortfall in sales, and what little confidence was left in the management was severely shaken. The shares took a new 40% tumble and, as I write, the price is down under 350p, having actually recovered a little from a low of 310p.
And it had all started so well.
A new star
Supergroup floated in March 2010 at £5 per share, raising £120 million in the process and valuing the group at £375 million.
By June 2011, the share price had rocketed to nearly four times its float price, at over £18. That £375 million market cap was pushing on towards the £1.5 billion mark. But at that time, the shares were on a trailing price-to-earnings ratio of around 60. That's a phenomenon common with growth shares in their early days, but it often tends to factor in all of the growth potential and little or none of the risk.
When a set of results comes in a little behind the optimistic hopes, people sit back and re-evaluate the shares on fundamentals, and we end up with a downward re-rating of the price. What has happened is the valuation has "reverted to the mean", more in line with other companies in the same kind of business on more sustainable longer-term performance measurements.
By early last year, I think it was pretty clear that SuperGroup shares were caught in one of those early growth share bubbles. But there were management problems yet to come to light.
The bad news starts
With the share price sliding back, trouble in the supply chain hit the news in May, when the firm failed to get its summer clothing line out to its shops in time for the warm Spring weather. The news led to a further 22% fall in the share price, now down to £12.
That was followed in October by news of warehousing issues affecting the ability to get clothes onto people's backs in the volumes needed to keep the "growth share" story growing. That, we were told, would knock £9m from year-end profits. The result was a 25% fall this time, knocking the shares down to around 750p.
Then came February's news of declining sales growth, and the reversion to the mean kicked in further, sending the shares down to 575p. And the accounting errors revealed this week are really just down to incompetence.
Managing the brand
And then there is the problem of managing the desirability of a fashion brand. It really does pose quite a dilemma -- it's the celeb exclusivity that makes the fashionistas want to be part of a brand, but that's diametrically opposed to selling as much stuff as possible.
But it can be done, by getting your target markets right and keeping control over your distribution channels. Burberry (LSE: BRBY), after its rather embarrassing chav phase, has been a great example of how to do that well.
But even last year, here in Liverpool I was starting to see Superdry clothing adorning not just the attractive frames of the pretty young things, but the bellies of middle-aged men and teenagers wearing that Merseyside must-have, the black hooded tracksuit. Where Burberry once had its chavs, Superdry was attracting scouse hoodies.
Today, Superdry goods are showing up at some TK Maxx stores and eBay retailers, suggesting a desperation to offload stock. And that is really not good for the image of an up-market fashion brand.
So in the end, could we have seen it coming? Well, I think the peak-price overvaluation was obvious at the time. But worse than that, those repeated "isolated" incidents of supply-side failure were harbingers of management that just wasn't up to the task of meeting those optimistic growth expectations.
It really was time to get off the growth wagon when the first wheel started to wobble.
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