Down 94%! Is there any hope for penny share Superdry?

This penny share has lost most of its value over the last few years. But could there now be hidden value in this fallen stock?

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After losing half its market value in 14 months, Superdry (LSE: SDRY) is now a penny share. Over a five-year period, we’re looking at an even more extreme decline in the share price: 94%!

What on earth has gone wrong here? And is there any chance of a turnaround for this well-known clothing brand?

A fading brand?

Superdry began with the founding of Cult Clothing by Julian Dunkerton and a business partner in 1985. The company expanded rapidly, particularly with a younger demographic in university towns.

In 2003, Dunkerton co-developed a new in-house brand called Superdry. With its bright colours and unique Japanese font, the clothing brand established a unique look.

This stylish image was strengthened when David Beckham was photographed wearing a Superdry leather jacket. Obviously this was a major coup for the brand at the time and it gained in popularity.

However, that was nearly two decades ago. Nowadays, I don’t see too many A-list celebrities sporting its streetwear. In fact, it has an image problem in the eyes of some young consumers, at least in the UK.

The main barb thrown at the brand is that it’s for middle-aged men attempting to remain trendy. This is a major issue, as it’s notoriously difficult to repopularise a fading brand.

Profit warning

Last month, Superdry released a trading statement in which it withdraw its existing profit guidance of “broadly breakeven” for FY23. It blamed the cost-of-living crisis and bad weather for poor sales of its new spring-summer collection in February and March.

The company now thinks it could be loss-making this year due to this “challenging trading environment”. It expects revenues of £615m to £635m, slightly up from £610m in 2022.

Following this, the company announced that it had agreed with its lender to increase flexibility in its asset-backed loan of up to £80m. It’s also mulling over a possible capital raise through a 20% equity sale, which would dilute existing shareholders.

Plus, the retailer is proceeding with a plan to sell its intellectual property assets in the Asia Pacific region for approximately £34m.

Some positives

As dire as all this looks, I think there are some positives here.

First, CEO Julian Dunkerton has skin in the game. He’s been buying shares in his own company, which means he thinks it’s undervalued and things could improve.

Second, the fact that the brand might be associated with middle-aged men need not be disastrous. If some customers are reliving their youth through its clothing, then that suggests brand loyalty. And many of these men may have the disposable income to buy, say, a £200 Superdry leather jacket.

Personally, I’d rather have a customer base made up of some wealthier middle-aged adults than younger, potentially less loyal consumers. After all, it’s well documented that fickle teens can make or break a brand.

My move

I believe there is valuable brand equity here. This could be unlocked by a larger retailer acquiring the company.

Now, I don’t invest in stocks on the basis that an acquisition might be on the horizon. But I do think Superdry’s market cap of just £69m is very low. Any kind of positive news could send the shares soaring.

So I’m going to keep the stock on my watchlist for now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ben McPoland has no position in any of the shares mentioned. 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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