Supergroup dives as distribution failure prompts profits warning

Fashion retailer insists growth strategy in UK and overseas remains on track
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The Independent Online

Shares in Supergroup lost nearly a third of their value yesterday as the owner of the trendy Superdry brand warned on profits after a calamitous upgrade to a warehouse system led to a "significant" shortage in stores of clothing and different sizes.

Supergroup said the botched upgrade would result in its full-year profits – previously forecast at up to £67m – being lowered by £6m-£9m.

The glitch has also left it with increased stock worth £2m. However, the group said the incident was "isolated" to its UK retail business and did not affect its international or wholesale operations.

Chas Howes, the finance director of Supergroup, said he was "confident" the issue would be fully resolved by November, adding: "Christmas is absolutely still on track."

Still, yesterday's plunge is only the latest dip in a rollercoaster ride for Supergroup since it floated on the stock market at 500p in March 2010.

Its shares scaled the dizzy heights of £18.20 in February this year but yesterday plummeted by 298p, or 29.7 per cent, to 707p. Some analysts have blamed the shares' volatility on miscommunication, such as around cotton prices, while others have raised fears about the rate of its expansion – and questioned whether the brand is over-exposed.

However, Supergroup said its strategy remained on track. Mr Howes said: "There is no damage to the brand." He pointed out that strong demand for its offer and new stores overseas helped Supergroup post a 66 per cent jump in total sales to £54m for the three months to 31 July. Its UK retail sales, including online, rose 51 per cent to £34m in its first quarter.

Julian Dunkerton, chief executive of Supergroup, admitted problems with the new systems at its warehouse in Barnwood, Gloucestershire, had left it bereft of the right sizes in its shops towards the end of September.

He said: "You could certainly see that most products had one or two sizes missing. We saw a significant amount of replenishment was missing." While stock was dispatched in small and large sizes, its shops did not have enough of the sizes in between.

Supergroup had intended that its new IT platform would deliver increased efficiencies and capacity to help it better meet demand. But the interface between new warehouse management systems did not work.

Once the systems went live at the end of August, Supergroup said it encountered some short-term issues in the transition which has caused a "significant temporary reduction both in the amount of stock and range of sizes reaching its UK stores".

Mr Howes said Supergroup's trade had "held up really well" in the first two weeks of September. But then it noticed a blip in sales, which it later pinned to the IT switch.

Freddie George, the analyst at Evolution Securities, said he believed the drop in sales at Supergroup had also been "exacerbated by the unseasonal weather in the last couple of weeks in September and the uncertain global economic outlook".