I’ve never liked Superdry (LSE: SDRY) as an investment, mainly through seeing the way fashion can so easily swing from a brand being a must-have to a has-been.
I’m aware that a number of one-brand fashion companies do very well in the long-term, but they’re usually high-margin, top-end brands. And I just don’t think Superdry was sufficiently well established to prevent the turn-off that has crushed the share price by almost 80% since the end of 2017.
If that wasn’t enough, the recent battle for control of the company has descended to near school playground levels, with one lot refusing to play with the other lot if they win.
Triumphant return
This week, founder Julian Dunkerton narrowly succeeded in his attempt to rejoin the board in a battle over the company’s direction, winning 51.5% of the votes (including his own 18% stake). Big investors were split, with Investec and Schroders supporting Dunkerton and Aberdeen Asset Management backing the old board.
Now that Dunkerton has won the day, eight of the current directors have resigned (four immediately and four on three months’ notice). On top of that, Investec and UBS have resigned as the company’s financial advisers.
Whether Dunkerton’s departure a year ago was instrumental in the company’s woes is something we maybe have a chance of finding out now.
I’ve no idea who’s right about the way forward for Superdry, but I’m minded of Warren Buffett‘s insistence on a track record of good management in the companies he buys. I suspect he wouldn’t touch this shower with a bargepole. I know I wouldn’t.
Market best?
From a fashion retailer I’d never buy to one I’ve always liked, I popped into a branch of Next (LSE: NXT) the other day just to have a look around.
Though I’m not really in Next’s target market, I do have a weakness for nice shoes and I inspected Next’s offerings.
Though they’re not what I’d buy, they seemed to me to hit a good combination of quality, style and price. It’s a company that knows its market, and that’s come though consistent management quality — when’s the last time you heard of even a minor board-level disagreement at Next?
The current pressure on the high street has led to a slip in Next’s share price, down 10% over the past five years. Modest dividends, currently yielding around the 3% mark, only just compensate for that. But a flat total five-year return is actually a lot better than many high street rivals have achieved.
Time to buy?
When I see a stock I like under pressure, the first thing I do is look for potential problems in the company itself. Sales for the year to January 2019 actually rose by 2.5% (with online sales up 14.7%) and pre-tax profit remained essentially flat.
I’m keeping my eye on net debt, which rose slightly to £1.1bn. But that’s only around a quarter of sales and 1.5 times pre-tax profit, and is well within the company’s facilities. I’d like it to be lower, but I don’t see a real problem.
On forecast P/E multiples of 12 to 13, I’m once again reminded of a Buffett quote about how good it is “to buy a wonderful company at a fair price.”
