Supergroup’s stratospheric share price had to go into reverse eventually, but it faces bigger issues than the cotton price

Supergroup, the business which owns Superdry and Cult, has enjoyed a phenomenal run since floating on the stock exchange in March at 500p a share. But having hit a high of 1660p earlier this month, the company lost 11% of its value following its interims on Wednesday, and is down a further 5% today.

Supergroup’s performance is a textbook lesson in how the City works. It got carried away with the company’s story when the shares were on the up, and now it’s overreacting to the first piece of bad news. What spooked the City was a warning from CEO Julian Dunkerton about the impact rising costs will have on the business, which is weird because the issue affects all fashion retailers and has been well flagged by us and others for months.

With the shares at 1337p as I write Dunkerton doesn’t have too much to worry about and those who bought in at the time of the IPO are still quids in. Supergroup should in theory not be as badly affected as many other fashion retailers because its price points are quite high and its customers less price-sensitive than rivals, so it can better afford to pass on cost price increases.

If I was an investor in Supergroup I’d be less worried about the cotton price and more about how the company’s brand is going to stay fresh and exciting. It has been a phenomenal success story and opens amazing looking stores. Currently it’s a acquiring a lot of them, taking advantage of staggeringly generous deals from landlords, while also growing in a big way overseas and online.

That’s all very well and it’s been a great story so far. But what’s going to happen when customers grow tired of expensive hoodies with Japanese writing on, as inevitably they will? That’s what we’ve not heard from Dunkerton and his crew, but keeping the brand evolving and fresh is the biggest challenge they face if Supergroup isn’t to face the same problems French Connection has down the years.