Three is not the magic number for Superdry, and Barratt builds up margins

“The FTSE has been hit with a double whammy of trade war tensions and a few big names trading without the rights to their dividend including Centrica and Admiral, ” says Russ Mould, Investment Director at AJ Bell.

“UK shares followed Asia lower after comments from US President Donald Trump about how China ‘broke the deal’ during trade negotiations.

“Hong Kong’s Hang Seng index fell 2.2% and Shanghai’s CSI 300 index slipped 1.9%. The latter is now down 8% so far in May, putting the index on its worst losing streak since October 2018.”

Superdry

“They say profit warnings come in threes and that is certainly the case for troubled fashion retailer Superdry.

“Co-founder and interim CEO Julian Dunkerton has only been back in the hot seat for five weeks so no-one can really blame him for the sub-standard performance which includes several months where he wasn’t in the business.

“The news also doesn’t come as a surprise, hence why the share price has only reacted mildly today.”

“However, the latest profit warning is a stark reminder about the scale of the problems facing the business and the mountain Dunkerton has to climb to get it back on track.

“There is no point him having an aggressive profit target at the moment given the radical changes planned for the business. Stability is at the top of the agenda with earnings growth down the line once everything is in the right position.”

“His priority is to improve the online offering, put more stock into the best stores, cut discounting and introduce new products.

“Dunkerton will probably have a good six months’ grace period in order to get the business in shape and start executing on plans before the market starts to truly judge his performance. Until then it is likely to be a choppy period for the retailer.”

Barratt Developments

“While many of its rivals are seeing build costs ramp up, putting pressure on margins in a flat housing market, Barratt today unveils margin improvements.

“Costs are still increasing but the rate of inflation is not accelerating as it is elsewhere. One area Barratt has focused on in terms of protecting profitability is making ‘refinements’ to its housing ranges.

“Given the experience of several of its peers, investors will hope a pledge that these changes will not hit build quality is more than just an empty promise. At the very least the company can point to a decent track record in this area in recent years.

“Volumes remain steady and although there is no explicit reference to average asking price, the modestly above expectations steer for the full year suggests there cannot have been too much of a drop off here.

“And crucially, given the interest in the dividends paid by the sector, guidance is for a healthy net cash position at the end of the year.

“Today’s news from Barratt and its positive outlook looks all the more impressive when you consider the latest RICS survey of the housing market suggests that, despite the threat of an immediate cliff edge Brexit being removed, there was little sign of a recovery in April.”

These articles are for information purposes only and are not a personal recommendation or advice.