What's going on?
The UK “enjoyed” a record heatwave over the summer and it got everybody sweating – including Superdry. The British clothing retailer warned investors on Monday that it’ll make less moolah than expected this year (tweet this), sending its shares down 20%.
What does this mean?
Superdry hangs its hat on keeping customers (super) dry and warm – around 45% of its sales come from cold weather wear. With that cold weather noticeably absent in the UK (where it does nearly a third of its business), continental Europe, and America’s East Coast, it seems Superdry’s customers took a rain check.
As if that weren’t enough, Superdry’s also smarting from currency fluctuations – its hedges, perhaps also wilting in the heat, proved inadequate protection (more below). Altogether, Superdry reckons its annual profit will be some $24 million lower than previously expected. Still, at least things aren’t quite Sears-level bad…
Why should I care?
For markets: Hedging can be complex.
For global companies like Superdry that have sales and costs all over the world, currency fluctuations can be a bit of a pain. They can be unpredictable, making it hard to forecast and budget accurately. So companies often hedge, buying a bunch of currencies that they’ll need in the future ahead of time. This gives them a fixed exchange rate and more clarity over costs – so fluctuations should have less of an impact. But this year, Superdry’s usual hedging arrangements didn’t work out as planned.
The bigger picture: Clothing retailers must adapt or die.
Superdry wasn’t the only one sweltering in the heat – other retailers like Zara and Zalando have been sweating cash, too. Superdry normally makes around 75% of its profit in the second half of the year – i.e. winter in the northern hemisphere. But with winters warming globally, it needs to adapt (as it’s trying to do with a plan to diversify and reduce reliance on winter sales) or die. Then again, it’s not alone…