In the few days since everybody was feasting on Easter eggs, Superdry’s share price has shattered into more pieces than Humpty Dumpty
Superdry’s stock has plunged almost 65% over the last five days, at the time of writing. Now languishing at just 9.7p, the fashion retailer’s market cap is less than £10m, having been on a precipitously downward journey since mid-2021.
The reason for this latest plunge is dashed hopes in the City that founder and chief executive Julian Dunkerton would buy the business back.
He and Superdry revealed last week that a takeover deal had proved impossible to pull off.
As Superdry’s top shareholder, with a 26% stake, Dunkerton’s own paper wealth has been decimated along with that of other investors.
Statements from Dunkerton and the embattled retailer last week disclosed that a takeover offer was “unlikely to deliver an outcome for shareholders, or stakeholders more broadly, that the transaction committee and Julian Dunkerton are confident can be executed in the context of the company’s ongoing work on its turnaround plan and material cost-saving options”.
However, it was also revealed that discussions are ongoing “in respect of alternative structures, including a possible equity raise fully underwritten by Julian Dunkerton, which would provide additional liquidity headroom for the Company’s turnaround plan”.
The drawback? “It is expected that any equity raise would be at a very material discount to the current share price.”
All this is happening against a backdrop of turmoil at Superdry. The interims in January showed a steep fall in sales, while a small statutory pre-tax profit was due to the sale of intellectual property. At an adjusted level, losses almost doubled.
“If an equity raise is launched, presumably existing shareholders will have the option of subscribing. The big question is whether they will be throwing good money after bad”
The retailer has managed to extend and increase a loan from Hilco, providing the liquidity needed to push on with a turnaround programme. That’s good news, but it is only in place until February next year, so Superdry needs to deliver an upturn in performance pretty quickly.
With all this in mind, investors now face a pretty stark choice.
If an equity raise is launched, presumably existing shareholders will have the option of subscribing. The big question is whether they will be throwing good money after bad.
In the 2019 annual report, after ousting former management and returning to Superdry, Dunkerton wrote: “My express intention in returning to the business is to guide the brand that James Holder and I founded back to its design-led roots.
“This desire is driven by our belief that, together with the wider design team that we had assembled at Superdry, we can return the company to strong revenue growth, restore double-digit EBIT margins and rebuild profitability over a three-year time frame.”
Covid interrupted, of course, but Superdry is not on course yet. Nobody would doubt Dunkerton’s passion for product and commitment invested in the business he built, but his ambitions are far from fulfilled. Why should it be different now, in extremely harsh trading conditions?
“There is the possibility too that Superdry simply presses on with its recovery efforts. Whether they would ultimately prove successful, nobody really knows”
A delisting would likely mean also that some institutional shareholders would not wish to maintain a position in the business.
On the other hand, if a deal went ahead and Dunkerton ended up underwriting it, to all intents and purposes he would have control of the business – an outcome that would likely leave a sour taste for some existing shareholders.
There is the possibility too that there is no equity raise and Superdry simply presses on with its recovery efforts. Whether they would ultimately prove successful, nobody really knows.
Superdry’s travails are mirrored elsewhere among listed retailers.
The Works, for instance, intends to delist from the main market and move to AIM instead. One of Dr Martens’ top 30 investors, Marathon Partners Equity Management, is pushing for a strategic review and argues: “Maintaining Dr Martens as an independent publicly traded company is likely no longer in the best interests of shareholders.”
And, of course, the most recent wave of retail IPOs failed to come good on its promise as valuations fell or, in some cases, companies collapsed.
At the same time, new names with new business models such as Shein – which is considering an IPO in London or New York – are on the rise.
It all raises questions, sometimes unfairly, about the retail industry’s investability at present.
The risk for retailers is that only the biggest, tried and tested businesses – or the fastest-growing, such as Shein – attract interest while others languish in the doldrums.
1 Reader's comment