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SuperGroup margins prompt share fall

The retailer's margins will suffer worse than first thought this year, but profits remain intact thanks to strong sales growth
May 16, 2017

The drop in SuperGroup (SGP) shares this week comes down to a sharper decline in margins than analysts - or investors - had expected. Despite a significant acceleration in the top line during the fourth quarter, a larger proportion of wholesale revenues and adverse foreign exchange movements mean full-year gross margins, which came in at 61.5 per cent last year, will contract by somewhere between 120 and 140 basis points. Analysts had previously expected a 60 basis point squeeze.

IC TIP: Buy at 1,555p

But analysts still see reasons to be positive on the stock. Underlying pre-tax profits are still expected to be in line with current market expectations - around £86m - while ongoing store refurbishments continue to pay off. The US business is also on track to break even this year, and should also start to contribute to growth over the next two to three years. Like-for-like retail sales growth of 9.4 per cent - well ahead of broker Peel Hunt's forecasts - also suggests that the group's products are still in high demand.

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