Profits up but SuperGroup has cotton cost fears

While the Christmas season has started well and the spring/summer order book is looking strong, SuperGroup is cautious over its outlook in the face of rising costs, particularly cotton, which recently hit 15-year highs.

The group's shares closed down 11 per cent last night, a fall of 178p to 1450p, having nearly trebled in value in the last six months.

Shares in SuperGroup listed at 500p in March, making it one of Britain's most successful IPOs this year.

SuperGroup, which operates from its Superdry and Cult stores, joins retailers such as Next and Primark in raising fears over escalating commodity prices.

Chief executive Julian Dunkerton said: "Increases in raw material prices may affect gross margins in the next financial year, however, we will keep these under review and expect our margins to return to more normal levels by financial year 2013."

SuperGroup said underlying pre-tax profits rose almost 70 per cent to 13.5m in the six months to October 31, as retail sales leapt 72 per cent to 54.4m.

The group opened its largest Superdry store in Sheffield's Meadowhall shopping centre earlier this year, at 6,300 sq ft. It also has a site in Leeds.

It has also opened a Cult Clothing store at the front of St Stephen's shopping centre in Hull.

The company, which targets the youth fashion market, has expanded aggressively, opening new stores and extending its clothing range.

SuperGroup said that its retail division is benefiting from high demand for its new autumn/winter range.

The group said the early signs of Christmas trading are "very encouraging", adding to signs that consumers are defying bad weather to buy goods ahead of a rise in VAT sales tax to 20 per cent early next month.

An industry survey yesterday showed UK retail sales are rising at their fastest pace since 2002.

"The autumn/winter collection has been well received by our customers in the UK and overseas, and our owned and franchised retail expansion is progressing as planned," said Mr Dunkerton.

He added that the group's e-Commerce offer is performing well in the run-up to Christmas.

The group's wholesale spring/summer order book is also strong.

The group is best known for its trademark T-shirts, hoodies, check shirts and jogging bottoms as well as its celebrity clientele.

The wholesale division, which sells the Superdry brand to international distributors, franchisees, licensees and independent retailers, delivered 35.9m of revenues, up 56 per cent on the previous year.

Mark Photiades, a retail analyst at Singer Capital, said the results had come in slightly ahead of forecasts.

He said: "No formal data has been given on current trading, however management states that the early signs of Christmas trade are encouraging and the new collections have been well received.

"The spring order book is strong as is the pipeline of new stores."

Richard Curr, head of dealing at Prime Markets, said: "SuperGroup has rather incredibly progressed from a limited liability partnership to rising FTSE250 star in the space of just five months."

He added that the international retailer and wholesaler of branded youth fashion with its Superdry brand has clearly captured the imagination.

"Notwithstanding the sharp fall in the share price, the results are impressive by any standard and clearly illustrate a new rising star in serious growth mode," he said.

The rising costs of cotton and labour are set to squeeze fashion retailers across Europe next year.

Yesterday Spanish chain Zara signalled a slowdown in underlying sales as it met forecasts with a 42 per cent jump in nine-month net profits.

But sales in local currencies were up 10 per cent from August 1 to December 12, a figure which some analysts said amounted to a slowdown in recent weeks after stripping out new store open-ings.

Shares in Swedish chain Hennes & Mauritz, Europe's second biggest clothing retailer, were also dragged lower despite reporting a rise in same-store sales for November.

Retailers are battling against a rise in input costs as wage rates increase in China, where many of them source their goods.

H&M rattled investors in September when it reported a fall in third-quarter profit margins, while discount chain Primark reiterated last week that rising input costs would affect its profitability.

H&M, which runs over 2,200 stores in 38 countries, said same-store sales rose eight per cent in November, helped by a very weak comparable figure in the same month last year and a robust economic recovery in its main market of Germany.

Celebrating 25 years

SuperGroup celebrates its 25th birthday this year after the company was founded in 1985 by Julian Dunkerton. The company started as one store, then called Cult Clothing.

In 2003, Mr Dunkerton joined forces with designer James Holder who had previously founded the Bench brand, to develop a new in-house brand, Superdry. Following the introduction of Superdry into Cult Clothing stores, a second store format, branded as Superdry and dedicated to selling Superdry products was launched in 2004.

Superdry is now sold in over 20 countries across Europe, Asia, Australia and the Americas.