Superdry has warned of a difficult Christmas for retailers as the fashion chain fell into the red and confessed to a near-£4m accounting error.
The company flagged an “isolated error totalling £3.9m” related to stock handling costs as it reported a first-half loss of £4.2m, down from a £26.4m profit a year ago.
Sales slumped 11% as Superdry, best known for its brightly coloured hoodies and T-shirts emblazoned with Japanese script, stopped using price cuts to tempt shoppers.
The company’s co-founder Julian Dunkerton is back in charge after leading a boardroom coup in April when the business had floundered in his absence. The entrepreneur, who started out selling clothes on a Cheltenham market stall, is taking the brand back to its design roots. The plan involves stocking a bigger range enhanced by smaller, upmarket collections.
To bolster its fashion credentials, the company hired Phil Dickinson as its creative director at the start of this year. However, the former Nike executive clashed with the financial press at a presentation in the City designed to trumpet his work on new ranges. He said talking to business reporters about fashion was like “talking to a brick” and told one female journalist not to touch the arm of his £600 Superdry varsity jacket with her “sweaty journalist palm”.
Dunkerton launched Superdry with the designer James Holder in 2003. Holder, who now runs his own design business, has also been tasked with developing new product for inclusion in its ranges as part of the overhaul.
Julian Dunkerton is the first to admit that Superdry is his obsession. “I live, breathe and wear Superdry,” the 54-year-old entrepreneur said recently of the fashion brand he co-founded 16 years ago. “I have other businesses, but Superdry is my obsession.”
After three Es at A-level put paid to his ambition of becoming a doctor, Dunkerton focused on fashion. Living off the Margaret Thatcher government’s enterprise allowance scheme, which paid budding entrepreneurs £40 a week, the public school educated son of a BBC producer started out selling clothes at Cheltenham market. That stall would morph into the successful Cult Clothing chain but Dunkerton really struck business gold in the early noughties when he teamed up with designer James Holder to start Superdry.
Superdry grew quickly, aided by celebrity fans like David Beckham, and in 2010 Dunkerton, who still owns 18% of the company, banked £80m when it floated on the stock exchange. The businessman, who drinks nine shots of coffee a day, shuns smartphones which he argues “clog” up people’s time with email. If he has any spare hours he fishes on the River Avon, near the company’s Cheltenham head office.
Dunkerton’s other interests include his family’s organic cider business and a chain of gastropubs and hotels in his native Cheltenham. He recently got remarried to the fashion designer Jade Holland Cooper who runs her own label.
Dunnkerton quit Superdry last year after a row over strategy but an interview last year contained a clue that he would find it hard to walk away: “I don’t want to sit on a fancy yacht and twiddle my thumbs,” he said. “If you were a brilliant tennis player you wouldn’t stop playing, would you?”
Dunkerton has said it will take several years to turn the business around after the company lost its way under the previous management team, and at the moment the numbers look grim.
He reported an encouraging start to the key Christmas trading period but was cautious about the all-important weeks ahead: “There remains considerable risk over the peak trading period against a highly promotional and competitive high street. This is against a backdrop of continuing macroeconomic uncertainty, particularly from the UK election and Brexit.”
The accounting error was part of a bleak picture with £10m of charges – £3.1m of which related to stock valuation and £6.9m to cover bad debts with business partners – contributing to the profit wipeout in the six months to 26 October.
The £3.9m accounting error, which related to the previous financial year, stemmed from the “overly complex” record-keeping process it used to track the cost of importing stock and moves between warehouses.
It is not the first time Superdry’s accountants have got their maths wrong. In 2012, “arithmetic errors” contributed to a profit warning after it discovered a plus rather than a minus figure had accidentally been entered in its accounts.
“We have identified an isolated error totalling £3.9m,” the company said. “We have reviewed the recording processes and concluded that the record-keeping process was overly complex. We have now simplified the accounting.”
James Yacoub, a retail analyst at GlobalData, said the figures showed little concrete evidence of improvement.
“Superdry continues to slip behind competitors who have far more refined propositions and are more in tune with their customers’ needs,” he said. “JD Sports, for example, has remained relevant to its core customer base by continuing to stock the latest and most popular athleisure brands as well as partnering with prominent influencers.
“Dunkerton remains cautious about Superdry’s potential over peak Christmas trading. Rightly so, as the brand attempts a transformational comeback amid one of the most challenging retail periods.”
