Superdry plc: A supercharged strategy for a new era - March 2019 - Save Superdry
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Superdry plc:
A supercharged strategy
for a new era
March 2019
1
Disclaimer
This presentation is for discussion and general informational purposes only. It does not have regard to the specific investment objective, financial
situation, suitability, or the particular need of any specific person who may receive this presentation, and should not be taken as advice on the merits
of any investment decision. The views expressed herein represent the opinions of Julian Dunkerton and James Holder (the “Founders”), and are based
on publicly available information with respect to Superdry plc (“Superdry” or the “Company”). Certain financial information and data used herein have
been derived or obtained from public filings. This material does not constitute an offer to sell or a solicitation of an offer to buy any securities described
herein in any jurisdiction to any person, nor does it constitute financial promotion, investment advice or an inducement or an incitement to participate
in any product, offering or investment. This material is informational only and should not be used as the basis for any investment decision, nor should
it be relied upon for legal, accounting or tax advice or investment recommendations or for any other purpose. No representation or warranty is made
that the Founders’ objectives will or are likely to be achieved or successful. The Founders have not sought or obtained consent from any third party
to use any statements or information indicated herein as having been obtained or derived from statements made or published by third parties. No
warranty is made that data or information, whether derived or obtained from filings made by the Company or from any third party, are accurate. Except
for the historical information contained herein, the matters addressed in this presentation are forward-looking statements that involve certain risks and
uncertainties. You should be aware that projections and forward-looking statements are inherently uncertain and actual results may differ from the
projections and other forward-looking statements contained herein. All amounts, market value information and estimates included in this presentation
have been obtained from outside sources that the Founders believe to be reliable or represent the best judgment of the Founders as of the date of this
presentation. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or views
contained herein. Projections, market outlooks, assumptions or estimates in this presentation are forward-looking statements, are based upon certain
assumptions, and are subject to a variety of risks and changes, including risks and changes affecting industries generally and Superdry specifically.
The Founders reserve the right to change or modify any of the opinions expressed herein at any time as they deem appropriate. The Founders disclaim
any obligation to update the information contained herein.
2
Summary: Supercharging Superdry
£1.2 billion of value destroyed from January 2018 to date by a 75% fall in the share price
• Superdry has now fallen out of the FTSE 250 index, due to its depleted market cap, which now stands
at £446.74m (as of 27/02/19)
• This is symbolic and a damning indictment of how poorly performing a business it now is, unable even
to maintain its mid cap status
Profits have halved Quarter-on-Quarter, and revenue has fallen for the first time ever, as a result of the damaging
change in strategy across all categories:
• Design • Retail • Online • Seasonal
Superdry needs a return to its design-led roots to arrest this decline and revert to growth
• Two additional Directors proposed to add to the board:
– Julian Dunkerton (co-founder and c.19% shareholder)
– Peter Williams (independent)
Peter would be an independent director. He does not have and has not had any business
or other dealings with Superdry or Julian or James
• Julian will commit to not selling his shares for at least two years
• James Holder’s DesignLab to be utilised again to energise and innovate product
(James is co-founder and c.10% shareholder)
• Our objective is to help return the company to profitable revenue growth, restore double-digit EBIT margins
and rebuild profitability, which we believe is achievable within a 2-3 year timeframe
3
Who We Are
Julian Dunkerton James Holder
Co-founder Co-founder
Former CEO Former Brand and Design director
Former director of Brand and Product Head of Holder DesignLab
c.19% shareholder c.10% shareholder
Julian Dunkerton has delivered 33 years of James Holder founded Bench clothing, and Superdry with
uninterrupted sales growth in fashion retail. Julian. He was the creative genius behind Superdry and now
He founded Superdry with James, growing it DesignLab. He is one of Britain’s most successful designers
to a market cap of £1.6 billion. and has an unaparalleled understanding of Superdry’s DNA.
4
Why we are here
5
Superdry’s Performance Since The Strategy Shift (As Communicated By Current
Management To The Market Over The Past 12 Months)
Source: FactSet. Comparator group as stated by Superdry for long-term management incentives
6
An Alarming Decline In Performance
• Under Julian and James’s stewardship, Superdry grew from inception in 2003, to a £1.6 billion market cap
listed company in January 2018. This success was primarily down to Julian’s understanding of the retail
market and the consumer and James’s innovative designs
• Julian’s retail, online, product and European roll-out strategy continued to fuel growth after he stood aside as
CEO in 2014, to focus on brand and product
• The current strategy was adopted at the end of 2017, despite Julian’s objections
• Julian left the board in March 2018 because of fundamental disagreements over strategy. Since his
departure, the company’s financial and operational performance has deteriorated dramatically
• Julian and James formally approached the board multiple times
• The current leadership, through its strategic and operational changes, has lost the essence of the brand
• There is great precedence of the value Founders bring to a business:
– Steve Jobs (Apple), Howard Schultz (Starbucks), Charles Schwab (at his brokerage), Jerry Yang (Yahoo),
Malcolm Walker (Iceland), Steve Morgan (Redrow) and Michael Dell (Dell)
– They have all been called back into action to revive their companies’ fortunes
7
Since the implementation of the
current strategy profits have halved,
halting the group sales growth for the
first time in the company’s history.
8
2020E & 2021E PBT Consensus Forecast – Superdry Vs. Peers (rebased)
£m (Rebased to Superdry 2020E and 2021E)
Source: FactSet
9
PBT Consensus Forecasts (Old Strategy vs. Current Strategy)
Old strategy Current strategy
£140m
£130.2m
£130m
£120.7m
£120m
£110m £107.1m
£100m £97.1m (£67.3m)
PBT forecast
£90m £87.0m
£80m
£72.4m
£70m
£63.2m £62.9m
£58.8m
£60m
£54.1m
£50m
£40m
2015 2016 2017 2018 2019E 2020E 2021E
Source: Liberum estimates
Source: Liberum estimates
10The Market’s View
‘‘A marked worsening of the Retail trends. ‘‘Today’s trading update provides the numbers behind the
Q3 saw store revenues decline by autumn profit warnings that have seen forecasts halve.
-8.5% (H1 -2.3%), and most alarmingly, Covering the 13 weeks to 31 January and the pre-Christmas
ecommerce also moved into negative profit warning, today’s update is as poor as can be
territory at -0.7% (H1 +6.9%) … We see expected … Sales performance is in line with downgraded
scope for outer year forecasts to come expectations. Gross margin will deteriorate from H1 … Short
under further pressure. We would continue term, we see little or no upside to numbers or
to avoid.” trading patterns.”
(Andy Wade, Numis, 07 February 2019) (John Stevenson, Peel Hunt, 07 February 2019)
‘‘Superdry’s weak ecommerce ‘‘You have to question a strategy which leaves the company so
performance is especially worrying given at the mercy of fluctuations in the weather. All eyes will be on
that spend continues to shift online as Dunkerton now and what his next move might be.”
competition from young fashion online (Russ Mould, Investment Director, AJ Bell, 07 February 2019)
pureplays intensifies.”
(Global Data analyst Amy Higginbotham, 07 February 2019)
11The Media’s View
‘‘There is a real debate to be had at Superdry ‘‘It’s a mistake (Superdry’s move into selling kidswear), not the
after the share price crash in the past year. first from the new management … Superdry’s appalling figures
Has the brand strayed too far from its today show the strategic plan put in place last September
roots … Is the online strategy wrong?” is not working.”
(Nils Pratley, Financial Editor, The Guardian, 08 February 2019) (Jim Armitage, City Editor, Evening Standard, 12 December 2018)
‘‘Superdry: don’t fall out with a founder… Superdry will get
‘‘Yesterday’s figures pile further pressure out of this mess only if it re-energises the shoppers who
on chief executive Euan Sutherland and first powered it to success. A rift with Dunkerton is the last
chairman Peter Bamford.” thing it needs.”
(The Daily Mail, 08 February 2019) (Oliver Shah, City Editor, The Sunday Times, 16 December 2018)
‘‘Superdry chief executive Euan Sutherland is ‘‘The news is likely to put added pressure on boss Euan
living on borrowed time … How long until Sutherland, who has come under repeated criticism from the
investors’ patience runs out.” fashion group’s departed co-founder Julian Dunkerton.”
(Jim Armitage, City Editor, Evening Standard, 07 February 2019) (City A.M. 08 February 2019)
12Why this has happened
131. A Damaging Change In Design Strategy
•
Superdry has undergone a dramatic shift from being a design-led business with innovative creative
input, a strong brand identity and an innate understanding of the customer, to follow a misguided
consultant-led business model
• By adopting this approach, where for example, colour chart books are used to predict the latest trends,
as opposed to any strong in house direction, the designs are often out of touch with the customers
• This is compounded by the length of time to production, which defeats the purpose of a
‘fast fashion’ strategy
• DesignLab has been stripped out, which previously generated Superdry’s best sellers
and crucial innovation
• By limiting the SKU count, core best selling products are removed in favour of less popular categories,
and innovation is stunted as the opportunity to ‘test’ new designs is limited
• A lack of innovation has limited the demographic opportunity for expanding the brand
• No testing of new products, and longer lead times to help Wholesale, resulting in a detrimental effect on
the retail environment with stagnated stores and stock
• Whilst other retailers are closing the gap between design to customer, Superdry is the only retailer within
its peer group to be lengthening this process
142. A Damaging Change In Seasonal Strategy
•
The weather isn’t the issue, the strategy is
• The previous two season model was created to ensure that seasonal relevant product was always in store
and available to the customer
• The new four season model has completely destroyed this. All seasonal relevant product is now on ‘discount
sale’ within its relevant season
• For example, Superdry went on sale indiscriminately across all categories on 22 December 2018
• There was a uniform 20% discount across all winter wear – throughout the coldest months of the year
(December/January/February), whilst shorts were being delivered in January, ahead of the freezing
‘Beast from the East’
153. A Damaging Change In Retail Strategy
•
Continuous discounting – on sale in 48 of the last 52 weeks resulting in both gross margin
and brand equity destruction
• A reduction in SKU count resulting in less choice for the consumer in every retail environment
• Up to 70% reduction of stock in store, offering the customer reduced options, and without the accuracy
of stock file in place to replenish the supply sufficiently
• An incomplete RFID roll-out resulting in inaccurate stock figures and broken sizes across all stores
• The dismantling of the Visual Merchandising Team resulting in no guidelines in store
• Key fixtures removed resulting in a poor store experience
16Retail Sales (Decline) As % Of Total Sales
(Online Sales In Deep Decline Offering No Offset)
In store decline
Retail sales as a % of total sales
75%
70% 70.7%
68.7%
66.8%
Retail sales a a % of total sales
66.3%
65%
62.9%
60%
60.3%
57.0%
55%
55.0%
50%
2014A 2015A 2016A 2017A 2018A 2019E 2020E 2021E
Source: Liberum estimates
12
Source: Liberum estimates
174. A Damaging Change In Online Strategy
• Online sales are now in negative territory, an extraordinarily bad performance when compared to the
rest of the fashion sector
• Superdry is the only fashion company to reduce SKU count online, whilst all other retailing peers,
as well as boohoo and ASOS, are increasing SKU count
• The current online strategy does not enable the introduction of new categories without destroying
existing ones
• No understanding of local market needs
• Lack of a clear marketing strategy
‘‘Unlike many of its rivals, there was no ‘‘Ecommerce revenue decreased 0.7%
digital surge to help offset the High which is a very poor result. No more than
Street decay … Superdry’s falling online 18 months ago this channel was growing at
sales begs the question of whether its web- over 50%.”
based sales platform is fit for purpose.”
18Online Year-On-Year Growth 2017-20191
(1) Growth as reported by Superdry
19In Summary
Brand Retail
• Complete misunderstanding of the previously successful business • Negative feeling delivered by constant discounting
model resulting in destruction of share price • Reduced choice in store
• Loss of brand identity and vision • Visually disappointing experience
• Change in the DNA of the brand • Broken sizes
• Lack of confidence in brand and product leading to discount model
• Loss of core customers
• No additions to customer base
• Social demographic of customer in downward spiral
Design Online
• A buyer-led not design-led approach • Online sales now in negative territory
• Loss of core designers and visual merchandising team • Huge missed opportunity to exploit online channel
• No innovation or testing • The only fashion company to reduce SKU count online
• No expansion into new categories • Inability to launch new categories without destroying existing ones
• No understanding of local market needs
• Lack of a clear marketing strategy
20What we can do
21The Opportunity
Through the Founders, Superdry needs
to return to being a design-led business
to reinvigorate the DNA of the brand.
What follows is a series of ideas, based on the views of the Founders,
that are designed to return Superdry to its former glory.
Our objective is to help return the company to profitable revenue growth,
restore double-digit EBIT margins and rebuild profitability, which we believe
is achievable within a 2-3 year timeframe.
221. A New Design Strategy
• Reverse the current buyer-led approach to return to a design-led business
• Re-engage DesignLab and creative teams
• Return to the quality of product that the brand became famous for
• Work on expanding innovation and SKU count
• Cancel proposed kidswear range
– Julian and James have always stated a kidswear range would destroy the ‘cool factor’ for the 16-24 age
group, a key demographic
– Many analysts agree that kidswear would alienate the core teenage customer as they will be put off by
his/her younger siblings wearing Superdry
– Introducing kidswear at a time when there is so much to do in the existing business is
a complete distraction
232. A New Product Strategy
Product Innovation
• Utilise DesignLab to produce a continuous flow of innovative, brand enhancing products
and capsule collections
• Enhance and support the ‘fast fashion’ side of the business model by producing cutting edge, commercial
branded product faster than any other premium design facility
• Internet exclusive, high SKU, low minimum product lines
• Core Classics to be reinvigorated, but true to the DNA of the brand
Commercially Creative
• DesignLab products to be more adventurous than the core collection and
produced in limited numbers with a premium price point to reflect scarcity
and level of detail
• With fast procurement systems in place, product lines can be delivered from
concept to online within 12 weeks for Turkish Graphic Product and 26 weeks
for China Outerwear
• Use the unique nature, appeal and position of the brand with its capability to
function in a multiple channel way
243. A New Retail Strategy
• Return to using Turkey to deliver a shorter production lead time to de-risk soft goods/categories
• Current management has shifted production to China, resulting in a longer production lead time, and
preventing the creation of mid-season drops and responsive designs
• Increase SKU count and begin to fast track the closure of the gap between product to consumer
– This affects circa 40% of product, resulting in the decrease of stock holding and allows the brand to be
more responsive to consumer needs and therefore better sales
– We can effect these changes by July/August 2019
• Reduce discount messaging and protect gross margin
• Improve store design and fixtures
• Enhance visual merchandising
• Reinstate interbranch transfers, maximising sales and product performance
• Complete stock management software (RFID) rollout
• Return to a two season model in store, and a constant flow of newness online
254. A New Online Strategy
• Restore and increase SKU count through DesignLab, reinstate the design and creative team and in season
drops, emulating the online giants
• Work with strong marketing and social strategy to drive traffic to the website
• Reduce discount messaging
• Capitalise on short lead time of Turkey production for in season relevant drops and increased SKU counts
for soft goods
265. A New Marketing Strategy
• Investment in marketing across social media to rebuild brand image that has been damaged by constant
discounting and lack of innovation
• Social media is a critical element of modern fashion business success. This will be key to relaunch and reset
Superdry within the youth demographic, the key customer base of the brand
• One key hire to execute and manage the social media strategy going forward
• Invest in a heavy blogger and marketing strategy to increase following and traction across all social channels
resulting in increased sales
Superdry Tommy Hilfiger Superdry Sport Gymshark
389k 10.2m 3k 2.9m
followers followers followers followers
Screen shots taken on 16/02/2019 and subject to change
276. A New International Strategy
• Review and overhaul the failed US roll-out strategy, with an East Coast bias
• Reduce discounting and restore gross retail margins
• China: bring overheads down, consider moving to a franchise model
– Use the skills developed in head office to assist and implement current buying and merchandising strategy
28How we can make this happen
29Reshape The Board
• Two additional Directors
– Julian Dunkerton to be re-appointed
– Peter Williams to be appointed in an independent capacity
Peter would be an independent director. He does not have and has not had any business
or other dealings with Superdry or Julian or James
• Establish board sub-committee to initiate a strategic review
– Address financial, operational and strategic concerns
– Julian to head product and brand
30Director Candidates: Credentials
Julian Dunkerton
• 33 years of successfully creating retail growth from start
up to £1.6 billion
• One of the UK’s most successful retailing entrepreneurs,
founding Cult Clothing in 1985; then founding Superdry in
2003 with James Holder
• Respected across the industry:
– PLC Entrepreneur of the Year 2013
– CEO of the Year: UK Stock Market Awards 2011
– Ernst & Young Entrepreneur of the Year: Retail UK 2010
– Ernst & Young Entrepreneur of the Year: London and South
Regional Winner 2010
– Emerging Retailer of the Year: Retail Week Awards 2010
– UK Fashion Export Award for ‘Contemporary Urban’
in 2009
– Young Fashion Brand of the Year: Drapers Award 2008
31Director Candidates: Credentials
Peter Williams
• Over 30 years in a variety of both executive and
non-executive positions in consumer-facing businesses
spanning retail, leisure, media and consumer products
• 13 years (to 2004) on the board of Selfridges, initially as
Chief Financial Officer and then as Chief Executive, during
its radical transformation into one of the world’s leading
department stores.
• For 8 years (up to 2013) he was the Senior Independent
Director at ASOS plc, the leading online fashion retailer,
during which time:
– Sales increased from £33m to £750m
– Profits increased from £1m to £55m
– The market value of the company grew from
£70m to over £4.5bn
• Peter is currently Chairman at boohoo.com plc, the online
fashion retailer
32In conclusion
33A Vital Vote
For the past year, Julian and James have sought to effect change through consensus, leading to a meeting
with the Chairman and certain NEDs on February 14 2019. We made the case that the company must return
to its design-led roots. Julian should be invited back on the Board to provide deep fashion, retail and brand
experience, and that Peter Williams should be appointed as an independent director to add his considerable
retail experience to the Board.
The company rebuffed this approach, and left us with no option but to requisition an EGM, asking shareholders
to back the appointment of the two directors. We delivered our requisition order on Friday, March 1.
All shareholders have seen a dramatic loss in value over the past year, in which the company’s current strategy
has unravelled. As Founders, who own almost 29 per cent of the stock between us, we have suffered more
than most in this period, and are determined to help reverse this catastrophic slide in Superdry’s fortunes.
Our interests are directly aligned to those of all shareholders. This is not an ego trip for us. We know this
brand better than anyone, and believe our well thought-out proposals, detailed over the previous pages of
this document, make logical sense. The EGM of Superdry Plc will be held at 11.30am 02 April 2019. We urge
you to vote in favour of BOTH resolutions: To appoint Julian Dunkerton AND Peter Williams, as an independent
candidate, as directors of Superdry Plc.
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