Investec retail stock analyst’s note: SuperGroup Q1 update is reassuring – buy

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Retail Times has teamed up with Investec to publish analysts’ notes on leading retail stocks. Today, Investec Securities analyst, Kate Calvert, suggests SuperDry brand owner SuperGroup’s Q1 performance is reassuring and recommends “buy”

SuperGroup’s slightly better-than-expected Q1 performance should reassure that the UK is solid and the long-term growth story intact. Management flagged Q1 retail LFLs would be negative and they are (-3.7%). Encouragingly LFLs are positive in Q2 to date. The A/W wholesale order book is up 10%, in-line with management’s expectations and our forecast. Q3 (Christmas) remains key for FY profits and with weakening comparables, we believe the company is on the right trajectory to achieve our forecasts. Buy.

  • Q1 retail LFL down -3.7%, slightly better than our expectation of -4%, with LFLs positive for first five weeks of Q2. A negative Q1 LFL performance (13 weeks) had already been flagged by management given a 5 percentage points tougher Q1 comp vs Q4, wholesale promotional activity for most of Q1 and a weak spring/summer (S/S) womenswear collection. On a two- year LFL basis, growth improved to 4.5%, from 0.4% in Q4.
  • Encouragingly, for the 18 weeks, retail LFLs down -1%. This implies +6% for the later five weeks (unweighted) as the new season ranges came in; the industry generally benefitted from the colder snap; and competitive pressures eased. Womenswear participation has also increased, which is encouraging after the weaker S/S collection, While we would not extrapolate the +6%, this performance helps underpins our 2H positive LFL expectations as the comparables weaken materially.
  • Wholesale Q1 +21.6% (INVe +10%), which still partly reflects S/S order book. The A/W order book is up 10% YoY, in-line with management expectations and our forecast, which is a good performance given the tough comp (+26%).
  • Sales momentum is, in our view, on the right trajectory to achieve our FY PBT forecast of £72.3m (consensus £70.3m), though Q3 (Christmas) is key for FY profits (c. 40% of retail sales). We continue to believe the valuation does not reflect the brand’s longer term growth potential in the UK & internationally.