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Why did the Superdry share price explode last week?

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The Superdry (LSE:SDRY) share price has had a rough couple of years, decreasing by nearly 80% since the end of 2017. The impact of the pandemic certainly didn’t help matters. But over the last few months, the stock has been making a steady recovery. And last week it shot up by over 40%, increasing its 12-month performance to nearly 220%!

What caused this enormous spike? And should I be adding this business to my watch list?

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The surging Superdry share price

The collapse of the Superdry share price in 2017 serves as an excellent example of a company expanding its reach but ultimately failing to retain its market share. Given the difficulty of succeeding in the fashion industry, this is not an uncommon story.

But is the recent surge in share price a sign that Superdry is making a comeback? Maybe. The primary driver behind this boost is the publication of its full-year results between April 2020 and April 2021. As expected, total revenue took quite a big hit. It continued its decline from £704.4m to £556.6m or a 21% reduction. Obviously, this wasn’t good news. So why did the share price go up by so much?

While the overall revenue dropped, a closer inspection did show some encouraging signs. E-commerce has slowly gained popularity within the fashion space and companies like Boohoo and ASOS have successfully managed to take advantage of it. But selling clothes online is something that Superdry has struggled to adapt to and is likely a contributing factor to its fall from grace among consumers.

Yet last year, online sales grew considerably from £151.6m to £202.9m year-on-year. As such, e-tail now represents around 36% of the total revenue stream. By comparison, in 2018, this figure was closer to 18%. The boost resulted in revenue for the fourth quarter growing, albeit by only 0.8%. And that looks like it could be the start of a turnaround, so investors went into a buying frenzy, causing the Superdry share price to explode.

What’s next for the business?

Seeing e-commerce become a more prominent part of Superdry’s revenue model is an encouraging sign to me. Why? Because strength in online sales really is crucial to the future of fashion retail.

Having said that, it’s hardly free from risk. We’ve already seen what happens when a clothing brand loses its popularity. And with many of its stores being closed throughout the majority of 2020, it’s difficult to discern whether the growth in online sales is sustainable in a post-pandemic world.

The Superdry share price has many risks

The bottom line

With high street footfall back on the rise as lockdown restrictions begin to ease, Superdry looks like it’s in a good position to start seeing growth again in its physical stores. But today, fashion missteps can seriously dent a brand’s appeal. And looking at its track record, the company, in recent years, has failed to keep up.

Personally, this isn’t a business I’m interested in owning, so I won’t be adding any shares to my portfolio. But what if Superdry can increase its online strength and recapture consumers for its brand? In that case, I do believe its share price could perhaps one day return to its highs of 1,900p. Whether that will happen, only time will tell.

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Zaven Boyrazian does not own shares in Superdry. 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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