Could Superdry be the best contrarian buy on the market today?
Full-year results from Superdry (LSE: SDRY) provided no surprises, revealing a statutory pre-tax loss of 85.4m and a 210.3p loss per share. There was still a dividend, mind, of 11.5p per share (down from 31.2p a year ago).
At first glance, paying a dividend might seem like a surprising move, but it did involve only a token 2.2p final payment, so Im not too disturbed by that. And the firms underlying figures were less bad, with pre-tax profit down 57% to 41.9m and earnings per share down 61% to 36.3p.
All eyes are now on returned founder and interim chief executive Julian Dunkerton. His success in getting shot of the old board, who he blamed for the companys fall from fashion, surprised many observers, and Ive been trying to make sense of it ever since.
Dunkerton was candid in telling investors that the company is in for another weak year this year, pointing out that: The issues in the business will not be resolved overnight. He added: My first priority on returning to Superdry has been to steady the ship and get the culture of the business back to the one which drove its original success. And I do think thats what the company needs right now.
I think Dunkertons take on Superdrys problems are absolutely on the money, in that the previous board had lost track of the firms competitive advantage and was moving erroneously towards the characteristics and direction of a general clothing retailer.
As a fashion brand, Superdry has always depended on appealing to a niche customer segment, and thats essentially been young adults who are followers of a certain style a very different appeal than more general fashion retailers, like Next for example.
Ive just done a search for celebrities wearing Superdry clothing, and among the results I found David Beckham, Taylor Swift, Kylie Jenner, Ben Stiller, Idris Elba, Pippa Middleton and I think that gives a reasonable view of the companys target market.
Are people who are inspired by such celebs likely to want to be seen as wearing the same brands that kids wear? I dont think so, and I think Julian Dunkerton was absolutely right in his complaint that the old boards move into that market segment was damaging the brand.
Now, thats all well and good, but what does Superdry look like now from a financial perspective? My colleague Paul Summers has examined that question in some detail, and likes what he sees from a contrarian perspective so much that hes invested in it himself.
Seeing the shares on forward P/E multiples of around 10 and with no debt problems, I agree with Pauls opinion that all of the pessimism is probably already factored into the share price. I also think Superdry is in a strong enough financial position to handle another year or two of weakness while working to rebuild its brand.
But personally, Im staying away, for the main reason that I dont know what it takes to build a fashion brand in the first place and I cant help fearing that its harder to rebuild one thats been tarnished.