(02/09/12) UK Fashion Brand Losing Its Chic

There are few things hotter than a clothing stock on the rise, and nothing colder than when that brand falls out of fashion, writes Cliff D’Arcy of The Motley Fool Europe.

Shareholders in fashion brand SuperGroup (London: SGP) must feel like they are riding a rollercoaster. In less than two years as a London-listed company, the Superdry owner’s share price has lurched up and down like a yo-yo.

SuperGroup…Super Shares?
SuperGroup came to the London Stock Exchange in March 2010, raising £120 million in an initial public offering priced at 500p a share, which valued the group at £375 million. In less than a year, its share price had almost quadrupled, briefly reaching nearly £19 in February 2011.

Alas, as with all "fad" fashion brands, SuperGroup has been unable to maintain the breakneck sales growth of its early years. As its market (affluent young adults) becomes increasingly saturated, the clothing manufacturer has seen a slowdown in its sales growth.

Hence, the past 12 months have been brutal for SuperGroup’s shareholders, as its share price came crashing back to earth. As I write, SuperGroup shares change hands at 576p, down 124p, which means that they have plunged 18% on Wednesday morning.

The reason for this fall is a profit warning brought on by slower sales growth. In the 13 weeks to January 29, retail sales grew almost 28% to nearly £79 million. However, in the 39 weeks to January 29, sales rose almost 31% to £152 million…so this trend has weakened recently.

The slowdown in wholesale sales was even more marked, with SuperGroup reporting sales up 18% to £24 million in the latest quarter. This compares badly with the 55% growth reported for the three most recent quarters, producing sales of £87 million. Overall group sales were ahead 25% at £103 million for 13 weeks, versus 39% growth and sales of £239 million for 39 weeks.

Sensible to Sell?
What’s more, SuperGroup warned that its full-year profits would be "toward the lower end of the range of market expectations" of between £50 million and £54.1 million. In effect, this is a modest profit warning.

In its latest announcement, the retailer warned: "Following a solid Christmas trading period, which saw like-for-like retail sales of 9.3% in December, there has been a slowdown in the last three weeks of January."

Given that SuperGroup’s go-go sales growth is stumbling, it’s no surprise that investors rushed for the exits, sending its share price sinking yet again. Even so, the group’s roll-out plan has continued, adding four new outlets to its portfolio of 76 standalone stores and 74 concessions.

Following today’s fall, SuperGroup shares trade on a forward price-to-earnings ratio of 14.5 and offer a prospective dividend yield of a tiny 0.6%, covered 11.4 times. Given its recent setback, SuperGroup’s shares seem rather expensive to me.

Superdry could become the latest in a long list of fashion brands that became overexposed and, in time, unfashionable. After all, how many Superdry-branded T-shirts, hoodies, and waterproof coats can a person want?

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