SuperGroup strategy oozes Hollywood glamour

Just five months into his stint as boss of fashion retailer SuperGroup, Euan Sutherland is creating waves with his long-awaited strategy update. The man in charge of the Superdry brand is hooking up with Golden Globe Awards winner actor Idris Elba to design a collection, has bought back ownership of its brand in America and will start paying dividends next year. The shares were hotly tipped by our resident stockpicker Edmond Jackson earlier this week as having potential to rebound - they have.

A series of issues last year caused SuperGroup's market value to more than halve, so long-suffering shareholders will be pleased to hear management reiterate 2015 profit guidance for £60-£65 million. The shares have rallied 7% in response.

Last year's disappointing spring/summer ranges clearly needed addressing, so Sutherland is making his 2015 collections more commercially attractive. That's involved getting Hollywood actor Elba to help design the Autumn/Winter 2015 season with co-founder and designer James Holder. He will also be the face of the campaign. Elba is famed for his roles in HBO series The Wire, BBC series Luther and biographical film Mandela: Long Walk to Freedom.

Eyebrows were raised when co-founder Julian Dunkerton stood down last year, making way for Sutherland, the former Co-op boss who left after one year, declaring it "ungovernable".

There are four pillars to Sutherland's strategy, which are to embed the brand to broaden and strengthen its appeal, invest in long-term growth, expand its product range and execute growth opportunities in new markets and online.

SuperGroup's dividend - due in the financial year to April 2016 - will look to be covered 3-3.5 times by earnings per share (EPS), which is sensible for a maiden dividend and gives room to grow. On this target cover, analysts at broker Peel Hunt predict an annual dividend of up to 23p a share next year.

Deciding to buy-out its 30-year US licence with SDUSA, the group is now the only company allowed to distribute Superdry products in America, Canada and Mexico. The £22.3 million cost was funded through its cash reserves and covers stock, shop fixtures, fittings and 15 leases. Although the deal will hit earnings in 2016, in the same period management hope to have halved last year's £5.1 million operating loss, with the North American operations being profitable in 2017. SuperGroup will release its full-year results on 9 July.

Sutherland has also added Penny Hughes to the board as independent non-executive director from 1 April. She currently holds the same role at Morrisons and Royal Bank of Scotland and has retail experience with Home Retail Group, Gap, Next and Body Shop.

Of the strategy update, John Stevenson, an analyst at Peel Hunt says:

FY2015 is in the bag following a successful peak trading period and post-Christmas trading. While confident in the outlook, we cut FY2016E PBT by £3 million to £70 million, EPS to 66.2p, reflecting the opening US losses. Trading on a FY2016E PER of just 14x, with a clear international roll-out strategy, we reiterate our buy stance.

Interactive Investor stockpicker was bullish earlier this week, too. "Despite a price/earnings multiple in the mid-teens, annual growth in forecast earnings per share is such that dividing these variables arrives at a PEG ratio below 1.0 for both the 2015 and 2016 financial years," said Edmond. "That implies investment value according to this classic measure of growth stocks."

"On the basis that broad economic recovery continues to muddle through one challenge after another, the stock's profile is attractive."

The shares have now broken above both their 50- and 200-moving day averages, and also briefly above technical resistance at 1,000p. After a significant de-rating last year, SuperGroup is a long way off its 12-month high of over 1,700p, but this strategy update is certainly a step in the right direction.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.