I’m finding it hard not to be a little bit tempted by the Superdry (LSE: SDRY) share price. After all, this retailer has just reported annual sales of £704m and a net cash balance of nearly £50m. But its shares are valued at just £113m.
That’s seriously cheap – Superdry’s business is being valued at less than 0.2 times its sales. By contrast, market-leader Next is valued at nearly 2.0 times sales.
Is Superdry a potential multibagger recovery play? I’ve been taking a look at the latest numbers from the firm to find out.
Can Superdry’s founder save the business?
Of course, one reason why Superdry is so cheap is that it’s losing money. A couple of years ago, this fashion group was making a profit of about £50m per year. Today, the company reported an underlying pre-tax loss of £42m for the year to 25 April.
When Superdry founder Julian Dunkerton took control of the company again in 2019, he aimed to “reset the brand” and return the business to growth. He hoped a focus on sustainability plus fresh new designs would kick-start sales and reduce the need for endless discounting.
Even before coronavirus, this looked like a tough job to me. But events this year have made things much harder. Lockdown has caused major disruption to the group’s sales and its supply chain.
Today’s results show the scale of the problem. Superdry’s sales fell by 19% to £704m during the 12 months to 25 April. Superdry’s share price is down by another 10%, as I write.
I think there are two factors that will decide whether the company survives. If you’re considering an investment, I think you need to take a view on these issues.
2 big challenges
As far as I can see, Superdry’s cash and bank facilities should be enough for it to get through the next year or so. That’s good news. But it’s not enough on its own.
In today’s results, Superdry reported a £137m impairment charge on its store estate. What this means is the company expects many stores to be trading at a loss for the foreseeable future. The only way out of this that I can see is for the firm to negotiate new leases with its landlords.
Progress is being made. Out of 241 owned stores, Superdry says it’s so far renegotiated 49 leases with an average rent reduction of 43%. The firm says it’s willing to close stores if can’t agree an affordable deal.
The second challenge facing Dunkerton is even harder, in my view. Can he make the Superdry brand desirable again? I’m not the right person to ask about fashion. But the firm’s next big test will be the release of its autumn/winter collection in October. This is the first range produced under Dunkerton’s management, so it’s important.
Superdry share price: my verdict
There are lots of financial details I could focus on from Superdry’s accounts. But, right now, I don’t think they’re too important.
What really matters is profitability and sales. That means boosting online revenues, cutting store costs and finding a winning fashion formula. I don’t know if Superdry can pass these tests or not. So, for me, this stock’s too risky right now. I think there are better growth opportunities elsewhere.
