Finance director Chas Howes - who last month became the latest senior executive to quit the retailer’s board following the resignation of chief operating director Diane Savory last year - admitted that a negative figure had been incorrectly included as a positive in its wholesale forecasts, meaning the profit forecast was £2.5m too high. Lower profit margins wiped off another £2m, the result of higher costs and a greater proportion of sales made through discount stores and its eBay outlet. And delays getting stock to franchise and wholesale customers cost SuperGroup another £2m, although it said that the sales would now fall into the next financial year.
The news saw the shares slump as much as 40 per cent, at one point touching an all time low of 310p before settling at around 370p, despite the group stressing that the recent problems would have a minimal impact on 2013 projections. Even so, broker Seymour Pierce has also downgraded its 2013 profit forecast from £64m to £56m, giving EPS of 52.2p.
Although we had suggested selling the shares last year at £14.68, the rapid rate of growth the business was achieving overseas meant we upgraded our advice alongside the last results. However, the latest profit warning suggests that SuperGroup still hasn’t got to grips with life as a public company, while it seems that the systems in place to manage rapid international growth have proved inadequate. Analyst John Stevenson at broker Peel Hunt agrees. “With another profit warning that questions management control and market communication, we have no confidence in delivery or market expectations, and struggle to see the shares as being investible,” he says.
Given we have further concerns about the longevity of the brand, we’re no longer prepared to give SuperGroup the benefit of the doubt that it's problems are behind it. The shares may look cheap on a 2013 PE ratio of just 7, but that's still generous given the possibility of further slip-ups and the further weakening of demand in the face of a difficult UK retail environment. Sell.