Just as speculation starts about a potential IPO in the retail sector in the form of Poundland, it is ironic that today has seen the last major flotation in the sector, SuperGroup, try to pick up the pieces after a disastrous year when the share price slumped well below after the debut level after a material shortfall in profits.
It is an old stock market maxim that newly floated companies always hit potential problems in their second year, because they can usually time things well enough to deliver decent-looking growth in the first.
And though it would be wrong to pretend that everything went swimmingly in Supergroup first year of public life, as underlying pre-tax profits of about £50m in y/e April 2011 were a bit shy of original hopes, the expectation a year ago was that this fast-growing business would step forward to profits of at least £70m in year just reported on.
The outcome, we now know, was that underlying profits slumped back to £43m, after some well-publicised internal problems on warehousing and systems, which is why SuperGroup now has a new finance director and chief operating officer and is setting about rebuilding management credibility.
Today’s presentation was very honest about what has gone wrong and what needs to be put right, in terms of internal processes and controls, but the problem about this sort of message is that it begs the obvious question of why we weren’t told before that the business was in such poor shape.
Much like the supermarkets who boast about cutting prices to become more competitive, without explaining why they weren’t competitive in the first place, fashion retailers that talk about becoming more efficient need to explain why the organisation was not properly structured in the first place.
There is another old maxim: caveat emptor. Those investors who bought at 500p in the IPO in February 2010 and sold at £17 to £18 a year later will feel that there is nothing to worry about.
On the other hand, those who bought at £17 to £18 in early 2011 thinking that SuperGroup was a more proven story have every reason to feel aggrieved.
At this stage, I ought to confess that I have been one of the biggest supporters of SuperGroup in the City and it pains me to admit that having picked the company as my tip for 2011, I compounded the error by picking it again in 2012. Once bitten, at least twice shy.
If truth be told, SuperGroup probably wasn’t ready to float back in early 2010. It has learnt a lot from its mistakes over the last year or so, but it could have learnt those lessons in private, without the agonies of having to explain away in public all the warehousing, merchandising and accounting errors along the way.
Fortunately, the Superdry brand doesn’t seem to have been damaged by all the adverse PR in the City and the product range continues to evolve nicely, with high hopes for the new womenswear range next Spring and the global recognition arising from the new Regent Street flagship. If only the IPO was in early 2013, not early 2010.
Which thought begs the final question of whether SuperGroup has spoilt it for every other aspiring new retailer by giving burning City fingers to such an extent.
Time, it would appear, is a great healer and the hot new sector of retailing is pound stores. Post-Woolworths, there is no way of investing on the stock market in the burgeoning discount sector, so it is easy to see why Poundland should get a good reception, as and when it decides to float, notwithstanding the disasters that befell SuperGroup.
It is not in the fashion business, it has a stable management team, it has a good growth record, despite the blip last year caused by the rise in VAT, and there is a significant US subsector of dollar stores to benchmark it against.
Analysts are paid to be cynical and the SuperGroup IPO has taught a few of us to be even more cynical, but let’s hope that Poundland doesn’t float at the top of the market for pound stores. In the meantime, although I have given up on share tipping, come on you Superdry.