Fashion chain Superdry (LSE:SDRY) is making headlines again, but not for the recovery play it had planned. The Superdry share price is now in freefall, and its outlook is pretty grim. The ongoing pandemic restrictions are hitting retailers hard. And FTSE 250 star AO World (LSE:AO) is also seeing its share price take a hit. Are either of these UK stocks now worth snapping up?
Some stocks are struggling
I think Superdry’s days are numbered. The clothes are of a decent quality and colourful design, but that doesn’t seem to be enough to keep consumers buying. Profits are what matters and Superdry has been losing money hand over fist for several years now.
The fashion chain released its half-yearly results on Tuesday, and it made dismal reading. It seems this brand is not the must-buy it once was. Fashion must stay ahead of the curve to remain relevant and as popular as these clothes once were, they’re very expensive for the target market they’re aimed at.
Superdry’s financials
Superdry’s market cap is £170m, earnings per share are negative, and it doesn’t offer a dividend. This FTSE All Share stock has been hammered by store closures during lockdowns and experienced reduced footfall when they briefly reopened. Its underlying loss extended to £10.6m from £2.3m year-on-year. Superdry’s online sales picked up by nearly 50% during this time, but its challenges continue.
Being stuck at home means consumers feel less of a need to buy new clothes. The potential for job losses is also encouraging consumers to keep a tighter rein on their spending, and expensive fashion is one of the first outlays to go.
The company was already in trouble long before the pandemic took hold. But Superdry had laid out a recovery plan and is continuing to work with this in mind. Nevertheless, I think its chances of a recovery are very slim. I won’t be buying the shares.
The AO share price slips
AO World is also seeing its share price suffer this week, but I don’t think its long-term outlook is so dire. I’ve used this company to buy electrical goods several times over the years. Its customer service is outstanding, and that’s enough to keep me returning.
Sales in the UK rose 67% in the final quarter of 2020, reaching £457m. This was its best trading period ever. Unfortunately, the retailer is also incurring a steep increase in costs to meet demand in a post-Covid-19 world. This was enough to scare shareholders into selling, causing the AO share price to fall. These higher costs come from warehousing, vehicles and employing additional drivers. Dealing with customer returns is also more expensive.
A UK stock worth watching
The AO share price rose a phenomenal 380% in 2020. It’s unlikely to see a rise like that again, but if my experience is anything to go by, many of its new customers may well become repeat buyers.
Having invested heavily in improving its set-up and increasing its team by 1,500 people, it should be ready for future sales. But when normality returns, customers may go back to buying their electrical goods in person. The group has a £1.6bn market cap and its forward P/E is 47. I won’t be buying this UK stock either, as I think it’s overpriced and there’s no dividend. But I’ll keep it on my watchlist.
