Warehouse problems have created a growth-share dilemma.
So here's a textbook investment dilemma for dedicated growth-share investors, provided courtesy of fashion chain SuperGroup (LSE: SGP).
The mid-cap behind the SuperDry clothing brand today owned up to some "temporary" warehousing issues, which will knock up to £9m from its current-year profits. Essentially an upgrade to various systems to "meet future growth" has gone awry and in turn prevented stock from reaching the chain's UK stores. The shares reacted to this "isolated event" by slumping 25% to 753p.
As you might have gathered from the words I've quoted above, SuperGroup reckons this warehousing botch is all short term. Basically it's an "unwelcome setback" and everything will apparently get back to normal during November. The group also announced new UK stores continue to open, and confirmed its international and wholesale operations had not been affected.
So perhaps today's statement provides a classic buying opportunity -- the chance to acquire a quality growth share on a very reasonable rating following a knee-jerk market reaction.
Pre-warehouse news, earnings this year had been expected to come in at around 61p per share. So assuming SuperGroup's systems are corrected and the lost profits can be recouped quickly, the underlying P/E here might be 12 -- not bad for a business whose 2011 results showed profits up 110% and whose subsequent first-quarter update revealed sales up a further 66%.
That said, there's nothing worse than backing a growth business that doesn't live up to expectations... and loyal SuperGroup holders have seen their fair share of "short term" issues of late.
Back in May for instance, the company admitted turnover had been hindered when it was slow to distribute its summer clothing during the warm Spring weather. At the time the shares fell 22% to £12. Then during last December, SuperGroup revealed some adverse accounting changes, which caused the shares to drop 10% to £14.
And in light of today's news, the earlier departure of the company's long-serving chief operating officer -- and the lack of any replacement appointment -- has suddenly become quite worrying.
Plus of course you have the ongoing debate as to when SuperDry clothing will lose its appeal. Once 40-year-old dads are buying the stuff, the fashion trend must surely move in some other direction.
So, yes, SuperGroup has become a textbook investment dilemma, for which I sadly can't offer you any clear-cut opinion. The shares do look good value, and my gut feel is that the price could be ripe for a shorter-term recovery if the warehouse issues are resolved and the next set of results reminds the market of the company's rosy sales prospects.
Yet I worry about SuperGroup's growing number of setbacks and that its fashion attractions will eventually lose favour. It'd become a stock that I'd always be looking to exit -- rather than add to -- and I've never really felt such investments are best way to generate long-term wealth.
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