The Motley Fool

As it staggers forward, is the Superdry share price low enough to be interesting?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Businessman standing in front of screen
Image source: Getty Images.

January was a bad month for clothing retailer Superdry (LSE: SDRY). The company was forced to warn investors that following a poor Christmas trading period – never something one wants to hear from any retailer – its full-year profits may be all but wiped out. The news sent Superdry’s shares tumbling almost 20%, a downward trend that has yet to really halt.

The problem with discounts

Aside from the obvious cause of any lack of sales – “subdued consumer demand” – Superdry also cited discounting on the high street as a cause of its problems. As my fellow Fool Michael Taylor rightly points out, discounting is a double-edged sword for retailers, particularly for those with a brand perceived to be at the higher end of the spectrum.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

While discounting can certainly bring in footfall, it does so at a cost of lowering the profit margin on the products. As a short-term move, this can be a trade-off worth making. Generally speaking, if you can get a customer through your door once, they are likely to come again. But maintaining this strategy for the long run will simply eat into your profits.

For mid-market and high-end companies, the problem can be far more fundamental. As a society, we generally associate price with value, and while almost everybody loves a bargain, the perception of quality in the fashion industry is important and price is crucial to this. It may be partly a fiction, but we all go along with it.

Ask yourself, for example, would Louis Vuitton or Calvin Klein project the same image if you could buy one of their handbags for £10 rather that £1,000, or a set of boxer shorts ‘three-for-a-tenner’? At first, such a discount would seem like the bargain of the century, but if after a year the prices stayed the same, the brand would soon lose its value.

Superdry, while not in the same echelon as the highest of fashion designer brands, was certainly seen as cool, with its colourful, Japan-influenced clothing at a price that let consumers know (and anyone seeing a person wearing those clothes) that they had some money to spare.

Moving its prices away from this arena to compete with other discounting retailers has been backfiring for Superdry and it’s one of the reasons co-founder Julian Dunkerton fought so hard to get back in control. Under him, the company now seems to have realised its mistake, saying: “We halved the proportion of discounted sales over our peak trading period, benefiting both our margins and the Superdry brand.” Hopefully it isn’t too little too late.

Ready for a turnaround?

Unfortunately, while it now seems to be realising this mistake, I can’t see its fortunes changing any time soon. Dunkerton, who returned as CEO last year after a boardroom coup, admits that his plans will take two to three years to return the firm to sales growth. While Superdry’s share price may be pretty cheap today, I’m not quite willing to say it won’t go any further before a recovery happens.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Karl has no position in any of the shares mentioned. The Motley Fool UK has recommended Superdry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.