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Can this FTSE 250 stock continue its fantastic performance?

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FTSE 250 retailer Superdry (LSE: SDRY) was one of yesterday’s newsmakers. Its share price showed a sharp 15% increase following its full-year results and trading update for the 18 weeks up to the end of August. It has fallen a bit in today’s trading, but is still fairly elevated. 

Mixed-but-encouraging results

The latest spike has a sense of déjà vu to it. This is not the first time that investors have reacted sharply to its results. Its share price rose by a whole 28% when it released its year-end trading statement in May as well. The latest increase is despite the fact that the company reiterated a 21% fall in revenues for the financial year ending 24 April, which was first reported in May. 

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However, there were positives here too. Superdry was already making losses when the pandemic started. But in the past year, its losses actually shrank by 78%, as government support partly made up for the shortfall in trading. 

The trading update showed some improvement too. Revenues grew by 1.9% from the corresponding period of the year before. Store revenues in particular bounced back fast by a huge 33% after expectedly shrinking last year. Wholesale revenues also improved, while e-commerce sales shrank because of a base effect. Digital sales had grown by 8% last year even as the other two categories shrank. 

Can the performance go on?

However, at least for now, I am not certain how much upside there is to its share price. It has shown a fantastic performance in the past year, almost doubling its share price. But in recent months, it has been falling fast. It has dropped by almost 35% from the highs seen in May, even though there are occasional increases like the one we saw yesterday. 

I reckon its share price will continue to remain uncertain until there is more clarity on its performance for this year. While some improvements are visible, the company has not returned to health like some of other retailers, such as JD Sports Fashion, for instance. And this is most likely because Superdry was already struggling before the coronavirus challenge came along.

Why I’m optimistic about Superdry 

There is some room for optimism here, however. This is because the company’s outlook is positive, with revenue expected to recover during the current financial year. I am particularly interested in the trends in e-commerce sales going forward. While in-store sales have improved, the latest increases in coronavirus cases and even talks of another lockdown, could spoil the party. If, however, e-commerce sales are strong, then some of the blow could be cushioned. 

Also, swinging back into profit may encourage its share price to start rising sustainably again. So far, the share price increase over the past year has been driven firstly by the stock market rally that started last November, and then in anticipation of better performance, as some improvement was visible early this year. But the stock could lag if the performance does not catch up with that seen across other retailers. For now, it remains on my watchlist. 

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Manika Premsingh owns shares of JD Sports Fashion. The Motley Fool UK has no position in any of the shares mentioned. 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.

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