Business Review


SuperGroup operates in the branded fashion clothing sector selling Superdry branded premium quality clothing and accessories for both men and women at accessible price points. The Group operates an expanding international business and continues to grow market share in the UK through its new store opening programme and the internet.

In a challenging retail environment, the financial year to 29 April 2012 has been disappointing. Whilst each of the Group's divisions has delivered strong revenue growth, the business has faced a number of challenges which have seen underlying1 profit before tax fall by 14.7% and the underlying1 operating profit margin fall by 7.5 percentage points. The movement in operating margin reflects the impact of a number of issues, the most significant of which was the difficulty experienced during the autumn after implementing a new warehouse management system ("WMS"). Further contributing factors include the rise in cotton prices, higher head office costs as the business has strengthened its management, and the increased participation of "off-price" sales to ensure the business operates with cleaner inventory, having cleared slow moving and older stock.

In 2011, the board recognised the need to strengthen the management team, and over the last 12 months the Group has made a number of important appointments to the senior management team. The appointments of a new Chief Operating Officer and Chief Financial Officer are catalysts to improving the way the business operates and will afford Julian Dunkerton additional time to continue the evolution of the brand through the creation of new and exciting product ranges and the development of the brand identity.

The Group has enhanced its logistical and warehousing capability through the introduction of a WMS and new physical warehouse capacity. The next 12 to 18 months will see continued infrastructure investment with the introduction of new merchandising and point of sales systems.

During the year, the Group launched a comprehensive, continuous brand tracking survey which provides insight about how the consumer views the brand and how the brand compares to its competitors. This research has confirmed the underlying strength of Superdry and its continuing appeal to its target customers.

Superdry has a number of points of differentiation that support its success: quality products at affordable prices with an attractive British tailored style reflecting an obsessive attention to detail. Julian Dunkerton and James Holder both have many years of experience designing fashion clothing allowing them to develop product ranges that continue to move on and reflect the changing tastes of the consumer. As part of the new ranges for 2013, Superdry is introducing a more feminine women's wear assortment and, through collaboration with the acclaimed British tailor Timothy Everest, is introducing a men's range of tailored suits, jackets and overcoats.

The Superdry brand remains strong and the Group is committed to investing in the business to provide a controlled and measured growth strategy.

Group strategy

Since the flotation on the London Stock Exchange in 2010, the Group's strategy has focused on five key areas:

  1. Roll-out of standalone stores in the UK and Europe;
  2. Developing the online offer;
  3. Expanding the international business;
  4. Extending the product range; and
  5. Developing an infrastructure that delivers profitable growth and operational efficiency.

Despite the issues highlighted above, progress has been made within each strategic area, contributing to the Group's continuing sales growth.

1. Standalone stores

Since the Group's flotation it has almost doubled its standalone store presence in the UK and Republic of Ireland, having delivered the short-term strategy of adding 20 stores per year. In line with many other retailers, given current economic conditions, management will continually review its ongoing store opening programme. Going forward, with the acquisition of SuperGroup Europe BVBA in February 2011, investment opportunities outside the UK will also be given due consideration providing a further channel for growth.

The Group successfully opened the ground floor of its flagship store on London's Regent Street in time for Christmas 2011. Two further floors were opened during March 2012 and the final floor will open during July 2012. The store will ultimately trade from approximately 22,000 square feet of retail space and is an international showcase for the Superdry brand; a further floor above the store incorporates a showroom which showcases the brand in an appropriate environment for international clients and franchisees.

The growing success of the Superdry brand has led management to take the decision to rebrand its 20 Cult stores as Superdry. The rebranding process will be completed ahead of 2012 Christmas trading and the Group intends to exit third party stocks in an orderly manner through its off-price channels.

The Group's off-price channels include outlet stores, eBay and trade partners. These generate profitable sales, minimise dilution of the brand with customers on the high street, and enable the Group to accelerate new product into the business. The demand for outlet stores has grown in recent years as UK consumers and tourists look to purchase discounted branded products. The success of these outlet stores has contrasted with the trend seen by most retailers in traditional store locations. Since flotation, the Group has increased the number of outlet stores from three to nine. As a result of these extra stores and an aged stock clearance exercise, 2012 saw increased levels of product being sold through off-price channels. Similar levels of sales are anticipated through eBay, outlets and trade partners in the current year as the Group looks to sell through redundant third party stock following the rebranding of the Cult stores and the clearance of prior season ranges.

2. Online offer

Internet sales are included within the Retail division's revenues and are complementary to the standalone stores. Through the "full-price" internet channel the Group sells to 101 territories. Six websites operate throughout the world, fulfilled from the UK, and the Group will continue to open international sites in the forthcoming year.

Traffic to the Superdry sites continues to grow with the number of visitors increasing by 39.3% to 20.2m visitors during the period (2011: 14.5m). Improving key performance indicators - conversion rates, average transaction values and service levels - have all improved with the continued success of the Group's e-commerce proposition. During the year, internet revenues grew to 10% of total Group sales (2011: 8%).

3. International business

The Group's overseas operations have continued to demonstrate significant growth during the year. The acquisition of SuperGroup Europe BVBA has given the Group additional experience and knowledge of European markets. This has assisted with wholesale and franchise expansion in other European territories, helping achieve a net extra 46 franchised and licensed stores worldwide over the year, an increase of 83%. The Wholesale division will continue to launch new and expand existing franchises and concessions as well as consolidating its existing markets of Germany, Italy, Spain, Denmark and the Middle East.

Since the year end, the Group has entered into an exclusive long-term franchise agreement with Reliance Brands Limited - a part of the Reliance Industries Group, the largest private sector company in India - to launch the Superdry brand in that country.

4. Product range

Almost half of retail sales are generated by t-shirts, casual tops and jackets. Superdry will, therefore, continue to extend its offer into denim, footwear and accessories, categories in which the Group believes there are significant opportunities.

Women's wear represents 34.5% of total retail sales which is broadly level with last year. The forthcoming spring/summer 2013 ranges have more distinctive feminine handwriting and stylistically represent a move forward of the women's ranges.

Accessory ranges continue to be well accepted by the brand conscious customer. Sales of accessories such as iPad/iPhone covers, headphones, and bags have seen growth of almost 300% during the year. Further ranges are in the pipeline and include a cosmetics range to be launched in time for Christmas 2012.

The Group has also sought to license the Superdry brand into new product areas. Examples include the successful launch of the Superdry fragrance and the Superdry optical range. Further licensed products are being considered including a new range of Superdry watches.

5. Infrastructure

Investment in infrastructure is pivotal in underpinning the next phase of the Group's development. The dual objectives of supporting business growth and delivering operational efficiencies will be achieved through improvements in information technology and thorough reviews of current business processes. There will be continued strengthening of the management team to ensure both are delivered optimally.

Key personnel

The business has been further strengthened during the year with the recruitment of experienced senior managers, including, towards the end of the financial year, two board appointments: Susanne Given as Chief Operating Officer, and Shaun Wills as Chief Financial Officer.

Shaun joined the Group on 23 April 2012 and one of his earliest priorities has been to review and strengthen the controls around the internal forecasting process to prevent the recurrence of the issues that contributed to the revised profit guidance communicated on 20 April 2012.

Susanne joined the Group and was appointed to the board on 10 April 2012. Susanne's primary focus will be to deliver continued growth and operational improvements and efficiencies in the UK Retail business whilst also overseeing central business functions including marketing, logistics, sourcing, IT and property.

A Head of Retail Operations also joined the Group during June 2012 and other key appointments during the year include a Head of Logistics and a Head of Sourcing. These appointments reflect the Group's plans to develop and professionalise its retail businesses and supply chain infrastructure. A Head of International Business Development was also appointed, reflecting increased focus on the Group's international growth opportunities. There will be an on-going focus on personnel during 2013.

Systems enhancement


A new WMS, designed to enable greater efficiency and provide a platform for future growth, was implemented in August 2011.

Issues relating to the implementation and integration of the new system led to stores not being correctly replenished, the result of which was incorrect stock profiles in the majority of the Group's UK retail stores and incomplete size ranges of key lines. The financial impact of the disruption was estimated at £9m, driven by a combination of lost sales revenue and additional distribution costs, including the use of temporary warehouse facilities.

The underlying systems and operational issues were resolved by the end of November 2011 ahead of the Group's peak Christmas trading and, with the UK's Retail division delivering 9% like-for-like sales during December 2011, it was apparent that replenishment was then operating effectively.

Other enhancements to the Group's systems capability are planned and include new merchandising and point of sale systems during the financial year ending 28 April 2013. A higher degree of rigour and project management resource will ensure lessons learnt from the WMS implementation are taken fully into consideration.

Retail locations in the UK and Republic of Ireland

Store format20082009201020112012
Standalone stores1825426079
Standalone – sales sq. ft.88,939126,704211,680306,571430,845
Average sq. ft.4,9415,0685,0405,1105,454

Wholesale worldwide partners

54 countries sold to in 2012 (2011: 40)

International sales represent 72% of Wholesale revenue (2011: 60%)


The Retail division comprises Cult and Superdry branded retail outlets in the UK and Republic of Ireland, as well as concessions and the internet.

The Retail division delivered external revenue of £191.0m, up 29.6% (2011: £147.4m), representing 61% of total Group revenue (2011: 62%). Underlying1 operating profit in the year was £31.7m (2011: £37.8m). Underlying1 operating profit margin was 16.6% (2011: 25.6%). The decline in underlying1 profitability of nine percentage points was driven by a number of factors and principally the impact of the WMS implementation which accounted for just under half of this movement. Other factors making up the remaining half include the impact of cotton prices, changes in the off-price sales mix, and cost increases across distribution and internet marketing. Further information on the Retail segment is included in note 4.

Business disruption arising through operational issues associated with the WMS launched in September 2011 adversely impacted Group profit by £9m. The gross profit impact through lost sales was around £6m and there were additional distribution costs, including the use of temporary warehousing of £3m. The system and operational issues were resolved ahead of the Christmas 2011 peak trading period.

The increased level of sales during the year through outlet stores and eBay provided the Group with the opportunity to manage stock levels effectively and in a profitable manner. In addition, outlets continue to grow in popularity with consumers. During the year, as planned, the number of outlet stores grew from five to nine stores.

In total 20 new stores were opened during the year, of which one was a relocation, adding 124,000 square feet of selling space, in line with the Group's objective. The total number of stores increased by 19 to 79 and at the year end retail traded from 431,000 square feet (2011: 307,000 square feet). The Group received £7.7m (2011: £9.7m) in landlord cash contributions which were used to finance the associated store fit-out costs.

External revenues191.0147.4+29.6%
Underlying1 operating profit31.737.8-16.1%
Underlying1 operating profit margin (%)16.6%25.6%-9.0 ppts
Financial derivatives(0.1)(0.5)
Freight & duty into inventory1.4
Retail operating profit (exc. Group overheads & royalties)31.638.7-18.3%
Underlying1 Group overheads(14.3)(9.1)+57.1%
Fair value consideration (Group impact)8.3(0.4)
Finance income0.10.1
Retail profit before tax before royalties25.729.3-12.3%

Retail division — revenue and profit growth £m


The Wholesale division comprises all international operations, including wholesale, license and franchise arrangements, SuperGroup Europe BVBA, but excluding the internet.

The Wholesale division delivered external revenue of £122.8m, up 35.7% (2011: £90.5m), representing 39% of total Group revenue (2011: 38%). Underlying1 operating profit in the year was £25.3m (2011: £21.4m). Underlying1 operating profit margin was 20.6% (2011: 23.6%). The decline of three percentage points was split relatively evenly between cost price pressures, in common with the Retail division, and investments in head office teams. Further information on the Wholesale segment is included in note 4.

The revenue growth in Wholesale is primarily attributable to increasing demand for the Superdry brand in Europe, in part driven by continued investment in franchise stores by distribution partners. Globally, there are now 130 franchise and licensed stores and 50 concessions in 54 countries, of which 46 were opened in the year (30 in Europe and 16 in the rest of the world). During the year a franchise store in the Manchester Arndale centre was closed and replaced by an owned store. In addition, the Kildare franchise outlet store was acquired and now trades as an owned store.

SuperGroup Europe BVBA, which includes both Retail and Wholesale activities, has completed its first full year of trading as part of the Group. Sales in the first full year were £44.0m (2011: £11.7m for 12 weeks). During the year, SuperGroup Europe BVBA added six owned stores (four in Belgium and one each in France and the Netherlands) and 11 franchise stores (eight in France, two in Belgium and one in Luxembourg).

In the rest of the world, franchises have opened in Finland, Switzerland, Hong Kong, Taiwan, Kuwait, Colombia and South Africa. Four concessions have opened in Canada and four licensed stores opened in the United States taking the total to 10.

External revenues122.890.5+35.7%
Underlying1 operating profit25.321.4+18.2%
Underlying1 operating profit margin (%)20.6%23.6%-3.0 ppts
Financial derivatives0.4(1.0)
Revaluation of SGE stock (IFRS 3)(1.9)
Including freight & duty into inventory0.2
Exceptional items(0.7)
Wholesale operating profit and profit before tax before royalties25.718.0+42.8%

Wholesale division — revenue and profit growth £m

Wholesale division — store numbers

Outlook and current trading


Whilst having full confidence in recent product developments and the operational improvements discussed previously, management does not foresee any material improvement in the UK retail market over the next 12 months and consequently expects conditions to remain difficult and extremely competitive.

It has been well publicised that the European market is more volatile than the UK presently but SuperGroup's relatively small market share in each territory still affords opportunities for growth in these countries.

During the financial year to 28 April 2013, the Group has targeted to add approximately 70,000 – 90,000 square feet of selling space through the opening of standalone stores across the UK and Europe. Additionally, a minimum of 30 franchise and license stores will be added to the portfolio globally.

The first 10 weeks of trading have been affected by the unseasonal weather conditions, with June being announced recently as officially the wettest on record. Despite that, results have been broadly in line with management expectations.

Julian Dunkerton
Chief Executive Officer
11 July 2012

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