Supergroup warns on slow growth

Shares in Supergroup (SGP.L) slumped on Wednesday after the fashion company issued a profit warning in the wake of slowing sales growth. Analysts showed their caution, disappointment even, presaging further downgrades.

‘Retail sales during the quarter have been mixed, with a challenging last three weeks of January,’ said Julian Dunkerton, chief executive at the popular fashion retailer, of the 13 weeks to 29 January. Consequently, Supergroup lost 101p, or 14% to 599p, after the Superdry fashion brand owner revised down its full-year profit guidance towards the lower end of market expectations, near £50 million.

With like-for-like growth coming in at 4.4% in the third quarter as a whole, compared with the 9.3% increase seen in December alone, the firm now expects full-year pre-tax profit to be at the lower end of the £50-54.1m range.

The British company reported a ‘solid’ Christmas trading period, seeing a rise in sales of 9.3% at stores open for at least a year. However, those were lost amid the slowdown in the last three weeks of January.

‘We still think a double-digit earnings growth profile over the next two years is still very plausible, although we maintain it will take several more quarters of flawless execution for Supergroup to regain its previous premium valuation rating to the retail sector average,’ said Peter Smedley, analyst at Charles Stanley. ‘Today’s profit warning does not provide that.’

A downgrade from Merchant Securities hasn't done much to help either, stressed at MarketWire. Merchant has cut its recommendation for the trendy clothes retailer from hold to sell following the recent rally in the share price. "The stock is overvalued trading on 15 times 2012 earnings," notes Merchant analyst Amisha Chohan. Chohan warns that if consumer sentiment remains subdued, "there is scope for the market to downgrade 2013 estimates from profit before tax of £64m".