Supergroup (LSE: SGP) has joined the growing number of companies blaming this autumns warm weather for a slump in sales: the firms wholesale orders fell by 3.7% during the second quarter, while like-for-like retail sales were down by 4.2%.
Shares in the Superdry owner fell by nearly 10% when markets opened this morning, after Supergroup used its second quarter trading update to cut its profit guidance for the year to between 60 and 65m, down from a previous guidance of 67m 72m.
Too many problems?
Along with the weather weve already had, Supergroup also blamed its profit warning on heavy discounting among its competitors and continuing weather related uncertainty.
The company then went on to say that planned strategic investment in the cost base investment in new warehouses and systems could also hit profits. This is strange, because only three months ago, Supergroup said that the groups new warehousing and merchandise management operations were performing to plan.
To me, all of this sudden bad news suggests to me that Supergroups new chief executive Euan Sutherland has discovered that things arent quite as rosy as he expected at the firm, and has decided to get all the bad news out in the open at the start of his tenure.
Frankly, Im worried
In todays announcement, Supergroup says that typically, 70%-80% of its full-year profit is made during the second half of its financial year, which started on 26 October. Its probably fair to assume that the weather will rapidly get colder as we enter November, so presumably sales of outerwear will return to normal.
Yet despite all of this, Supergroup has cut its full-year profit forecast by around 10% on the strength of a poor first half. To me, this suggests either that the first half was truly disastrous, in terms of discounting, or that the company has reason to expect that things wont improve as we enter winter.
Im a bit concerned by todays fresh evidence of problems at Supergroup, but CEO Euan Sutherland comes with a strong reputation as a retailer from his time as Chief Operating Office of B&Q owner Kingfisher. He may well be the man to finally sort out Supergroups growing pains.
With a forecast P/E of around 12 and no debt, Supergroup doesnt seem overly expensive, and its growth story remains appealing. Overall, I rate the shares as a hold, although brave investors might want to buy into todays dip.
Should you be brave?
It’s easy for City fund managers to be brave with other people’s money, but when you’re investing your own hard-earned cash, I think a more reliable approach is needed.
That’s why I’m a big fan of the simple 7-step approach described in “7 Simple Steps For Seeking Serious Wealth“, a brand-new report from the Motley Fool’s market-beating analysts.
This FREE, no-obligation report also includes information about three of the teams’ latest subscriber-only share tips.
To receive your copy today, click here now.
Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.