A reassuring trading update confirms that SuperGroup (OTC:SEPGY) continues to deliver attractive top-line growth. Admittedly, the superior wholesale performance means (as previously flagged by the company) that there is likely to be some gross margin erosion, but the focus on operational leverage should still ensure a modest improvement in operating margins going forward. Management’s commercial and pragmatic approach to expansion should mean continued success as the brand rolls out beyond its core markets of the UK and continental Europe.
Solid Trading Update
Although only revenue is reported at this stage (full interims will be published in January), the company’s message is that it is on track to meet half and full year profit expectations. The company reported revenue growth of 20.4% (17% at constant FX) to £402m. Retail revenue grew 12.8% and wholesale revenue was up an impressive 34% (there was some benefit from early deliveries here, which will probably be reversed in H2). The negative news is that like-for-like retail sales growth has slipped from 9.3% in Q1 to 3.7% in Q2. However, it is worth noting that Q1 was disproportionately flattered by FX translation and that the company is sticking with existing profit guidance, which would imply that it is not seeing any material deterioration. Brand momentum remains strong and this is clearly encouraging new and existing franchise and wholesale partners to invest in it.
Focus On Operational Leverage
Despite the expected 170bp decline in the gross margin (arising from the channel mix shift to wholesale as well as raw material cost inflation), management is still expecting modest improvement at the operating profit level and has maintained H1 PBT guidance of £25-26m. This is largely due to the company’s focus on efficiency gains, both at the front end (eg increasing store productivity through staff rota changes and enabling seamless online/offline stock movement in Europe) and at the back end (eg improved distribution centres and new order management system for e-commerce).
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