Business Review

Womens fashion

Introduction

SuperGroup operates in the branded fashion clothing sector selling Superdry branded premium quality clothing and accessories for both men and women at accessible price points. The Group operates an expanding international business and continues to grow market share in the UK, Europe and beyond through its internet operation and store opening programme.

Group strategy

The Group's strategy is focused in five key areas:

  1. expanding the UK and European standalone retail estate;
  2. delivering an e-commerce platform that increases its penetration of Group revenue;
  3. driving international franchised store expansion;
  4. extending the product range; and
  5. developing an infrastructure that delivers operational efficiency and a platform for growth.

Progress continues to be made in each of these areas and all are important contributors to the Group's growth.

Standalone stores

The Group operates three types of store: smaller boutique stores, typically found in Europe; medium-sized stores of around 5,000 square feet, principally in the UK but increasingly in Western Europe; and the much larger flagship stores in key cities of up to 25,000 square feet.

The Group is planning to add around 80,000–100,000 square feet during financial year 2014 and will take a pan-European approach to identifying store locations.

The Group has added 66,000 square feet during the year taking the total UK and European portfolio to 536,000 square feet (2012: 471,000 square feet). Twelve new stores were opened including five stores that were extended, one relocated to a larger site, and one store closed at the end of its lease.

The success of Superdry products in the Group's 20 Cult stores resulted in the decision to rebrand the stores as Superdry and this was successfully completed ahead of peak Christmas trading in 2012. As a consequence of the rebranding Cult now only trades through the website Cult.co.uk.

E-commerce

The e-commerce sites are complementary to standalone stores and the Group now sells to 122 territories worldwide through its websites. During the year the Group added ten local language sites: Canada (English and French), Denmark, Finland, Italy, Norway, Spain, Sweden and Switzerland (French and German). There are now 16 sites operating throughout the world, all fulfilled from the UK, and the Group will continue to open international sites in the forthcoming year. China represents an exciting opportunity and a transactional website is planned to be trialled during 2014. The site, which is currently under development, will also be fulfilled from the UK, which will allow it to carry the full range of Superdry products.

International franchised business

Through its global partners, Superdry opened 55 franchised stores of which 36 were in Europe. In addition seven concession stores opened and there were three further licensed stores, opened in the USA. It is anticipated that, circa 50 franchised stores will open during 2014.

The Group will explore potential opportunities to buy out existing master franchise and agency agreements in Western Europe. This will allow the Group to accelerate store roll-out by investing its own capital, improve margins on the wholesale operation and retain the local operational and management expertise. Since the year end, an agreement has been reached to buy out the distribution operation in Spain. The consideration is €2.3 million of which €0.3 million will be settled in shares. In relation to this transaction SuperGroup Plc will be issuing 16,500 ordinary shares to OSAKA 68 S.L. in July 2013, with the same number to be issued in July 2014.

Superdry's worldwide presence

FY13FY12Movement
UK/ROI:
Owned85796
Franchised35(2)
Concessions6971(2)
Europe:
Owned28244
Franchised966036
Concessions1046
Rest of World:
Franchised:
Asia1798
Middle East1587
South/Central America862
Africa312
Concessions:
North America440
Asia42420
Australia101
Licensed:
USA13103
Australia770
Total worldwide locations40133071
    
Owned11310310
Franchised1428953
Concessions1261215
Licensed20173
Total40133071

Product range

The Group continues to enhance its ranges through the constant refreshing of core products such as outerwear, hooded sweatshirts and casual tops, as well as the introduction of new categories and range extensions. The brand is increasing its consumer appeal through the introduction of more subtle branding, tailored product and tactical collaborations. Further developments have been made in the Timothy Everest range with the introduction of women's tailoring, which have received a positive reaction both from the customer and the fashion press.

The anticipated improvement in womenswear sales from the spring/summer 2013 range was realised with strong positive like-for-like sales growth in the final quarter of the financial year. The new ranges, with a distinctive feminine handwriting, have resonated with customers and further developments are planned with the autumn/winter 2013 range.

Accessories sales continue to grow strongly and, following last year's success with iPod/iPad covers and bags, further accessories have been added to the range, including the launch of a new watch collection in November 2012 and a premium range of cosmetics in February 2013.

Male knitwear

Infrastructure

The Group continues to develop its infrastructure; this investment is critical to the future growth ambitions of the Group and will take a number of years to complete.

The Group is making good progress with the merchandising management system and point of sale system, both of which are planned to go live after peak Christmas trading 2013. During financial year 2014 there are planned system replacements for finance and human resources.

During April 2013 the Group announced that it had entered into a long-term agreement with Clipper Logistics to provide an operational solution for the fulfilment of the Group's multi-channel retail activities from a new distribution centre in Burton upon Trent. The capacity of the new warehouse will be 500,000 square feet and will support the Group's growth aspirations in its next phase of development. The new distribution centre is ideally located for national carrier networks to supply the Group's retail outlets more efficiently and to support fulfilment of the Group's internet operations, both in the UK and internationally. This operating capability will support planned growth for at least the next five years. The new facility will require a capital investment of circa £5m. After the initial set-up and transition phase this investment will deliver an opportunity for the Group to generate significant cost savings, improve operating margins and provide a platform for the Group to meet the increasing demands of e-fulfilment.

The business has been further strengthened during the year with the recruitment of a Director of IT and Director of HR who have joined the executive team. During June 2013 the Group appointed a Managing Director, International and Wholesale. In addition, the senior management teams have been strengthened by the recruitment of a Head of Logistics, a Head of UK and Ireland Retail, a Head of Women's Design and, since the year end, a Group General Counsel and a Group Financial Controller.

Own store locations UK and Europe

20092010201120122013
Standalone stores (number)
UK2542607985
Europe182428
Total254278103113
Retail space (square feet)
UK126,704211,680306,571431,860488,846
Europe21,91738,80447,467
Total126,704211,680328,488470,664536,313

Wholesale worldwide partners

Retail

The Group has made changes to the way it reports its divisional performances, details of which are included in the introduction of the Financial Review; the comparative figures below are restated for these changes.

The Retail division comprises Superdry branded retail outlets in the UK and Europe, as well as concessions in the UK and global e-commerce.

The division delivered revenue of £242.5m (2012: £204.0m), up 18.9% and representing 67% of total Group revenue (2012: 65%). Like-for-like sales for the year, including the European owned stores and e-commerce revenues, were 5.7% (2012: 2.8%).

Operating profit was £46.8m (2012: £37.9m). Underlying operating profit in the year was £46.2m (2012: £38.0m) and underlying operating profit margin was 19.1% (2012: 18.6%). The improvement in operating margin reflects the gross margin accretion that has been generated across the Group driven by sourcing gains through better buying and sales mix, offset in part by distribution costs. The existing warehousing and distribution operation, whilst fit for purpose, is not optimally efficient and has resulted in above industry average costs per unit. In recognition of this point, the Group has taken the decision to relocate the warehouse and replace its third party logistics partner.

The operational performance of the standalone stores has improved during the year through the introduction of a flexible store payroll model. Historically, stores teams contained a high number of full-time colleagues; this has now changed to a broadly equal split of full-time and part-time employees. This has enabled stores to schedule the right level of staff in-store at key periods, which has resulted in an improvement in productivity.

During the year 12 new stores were opened (including one relocation), one store closed, and there were extensions made to five stores, adding in total 66,000 square feet of retail space. The extensions include the opening of the second and final floor of Regent Street, taking the store to 25,000 square feet.

In the UK a net six stores were opened including one of 16,000 square feet at the new Trinity Shopping Centre in Leeds and a further store in Derby, which has led to the closure of the franchised stores in these cities. There are 85 stores (2012: 79 stores) in the UK trading from 489,000 square feet (2012: 432,000 square feet).

Outlet stores continue to be an important destination for customers and support the Group's clearance activity and represent around 8% of total Retail sales. The Group trades from ten outlets (2012: nine outlets) in the UK.

Four stores were opened in Europe including Oberhausen in Germany which has been modelled on the UK store footprint and trades from circa 5,000 square feet, compared to the average European store at circa 1,600 square feet. Twenty-eight standalone stores (2012: 24 stores) now operate in Europe trading from 47,000 square feet.

The total number of standalone stores increased to 113 (2012: 103 stores) and at the year end Retail traded from 536,000 square feet (2012: 471,000 square feet). The Group received £3.0m (2012: £7.7m) in cash as landlord contributions which were used to finance the associated store refit costs.

Internet traffic to the Superdry e-commerce sites has continued to grow, with the number of visitors, including from mobile devices, increasing by 39% to 29.9m visitors (2012: 21.5m visitors). Mobile phone and tablet apps, which were launched last year, have proved popular with customers recording 4.6m visits (2012: 1.3m visits). Improving key performance indicators, including average transaction values, have contributed to the continued success of the Group's e-commerce proposition. During the year internet revenues grew by 27.8% to 11.2% of total Group revenue (2012: 10.0%).

Retail division

2013
£m
2012
Restated
£m
Growth
%
External revenues242.5204.0+18.9%
Underlying operating profit46.238.0+21.6%
Underlying operating profit margin (%)19.1%18.6%+50bps
Financial derivatives1.1(0.1)
Restructuring costs(0.5)
Retail operating profit46.837.9+23.5%

Retail division — revenue and underlying profit growth £m

Retail-revenue-underlying-p.jpg

Financial year 2012 has been restated to reflect the changes in segmental reporting; refer to the Financial Review and note 4.

Wholesale

The Wholesale division comprises wholesale, franchise and licence arrangements as well as trade sales but excludes e-commerce sales.

The division delivered external revenue of £117.9m, up 7.4% (2012: £109.8m), representing 33% of total Group revenue (2012: 35%).

Operating profit in the year was £37.1m (2012: £31.8m), whilst underlying operating profit was £35.6m (2012: £31.4m). Underlying operating margin was 30.2% (2012: 28.6%). The improvement in operating margin of 160 basis points reflects gross margin accretion that has been generated across the Group, driven by sourcing gains through better buying, currency gains, and increased operating income. This is offset in part by: a higher level of marketing spend, an increase in the bad debt provision and costs associated with operating the international showroom at Regent Street.

2013
£m
2012
£m
Growth
%
Wholesale revenue by territory:
UK and Republic of Ireland34.741.5–16.4%
Europe67.057.6+16.3%
Rest of World16.210.7+51.4%
Total Wholesale revenue117.9109.8+7.4%

The revenue growth in Wholesale has been driven by both increased order levels from existing franchisees and new franchised stores opened during the year. As reported last year, and as anticipated, the UK wholesale market has continued to decline as consumers elect to shop in Superdry stores and websites.

There are 142 Superdry branded franchise stores worldwide, 126 concessions (including 69 Retail concessions) and 20 licensed stores, operating in 60 countries.

The Group opened 55 franchised stores during the year; 36 were in Europe, of which 15 were in Spain, 13 in France and 19 in the rest of the world. Stores were opened for the first time in the following countries: India (4), Norway (3), Greece (2), Lebanon (2) and one in each of Egypt, Georgia, Hungary, Philippines, Qatar and Thailand. In the UK the franchise stores in Derby and Leeds were closed leaving three franchise stores remaining.

Seven concession stores were opened in Europe and Australia and three licensed stores were opened in the United States taking the total to 13.

Wholesale division

2013
£m
2012
Restated
£m
Growth
%
External revenues117.9109.8+7.4%
Underlying operating profit35.631.4+13.4%
Underlying operating profit margin (%)30.2%28.6%+160bps
Financial derivatives1.50.4
Wholesale operating profit37.131.8+16.7%

Wholesale division — revenue and underlying profit growth £m

Wholesale-underlying-profit.jpg

Financial year 2012 has been restated to reflect the changes in segmental reporting; refer to the Financial Review and note 4.

Current trading and outlook

Trading in the first nine weeks of the new financial year has been encouraging. Customers' reactions to the new spring/summer ranges have been positive and womenswear has performed well driving a further improvement in its sales participation.

During 2014 the Group's investment plans will require a capital expenditure of around £30m and will include opening 80,000–100,000 square feet of owned retail selling space in the UK and Europe. Internationally the Group anticipates adding circa 50 franchised stores.

The board remains confident in the Group's prospects for this financial year.

Julian Dunkerton
Chief Executive Officer
10 July 2013