Superdry Gets Wet

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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 itll 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 Americas East Coast, it seems Superdrys customers took a rain check.

As if that werent enough, Superdrys 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 arent 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 theyll 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, Superdrys usual hedging arrangements didnt work out as planned.

The bigger picture: Clothing retailers must adapt or die.

Superdry wasnt 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 its trying to do with a plan to diversify and reduce reliance on winter sales) or die. Then again, its not alone

Originally posted as part of the Finimize daily email.

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