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Superdry warns of tough Christmas amid accounting error | Business

Superdry has warned of a difficult Christmas for retailers as the fashion chain fell into the red and confessed to a near-£4m accounting error.

The company flagged an “isolated error totalling £3.9m” related to stock handling costs as it reported a first-half loss of £4.2m, down from a £26.4m profit a year ago.

Sales slumped 11% as Superdry, best known for its brightly coloured hoodies and T-shirts emblazoned with Japanese script, stopped using price cuts to tempt shoppers.

The company’s co-founder Julian Dunkerton is back in charge after leading a boardroom coup in April when the business had floundered in his absence. The entrepreneur, who started out selling clothes on a Cheltenham market stall, is taking the brand back to its design roots. The plan involves stocking a bigger range enhanced by smaller, upmarket collections.

To bolster its fashion credentials, the company hired Phil Dickinson as its creative director at the start of this year. However, the former Nike executive clashed with the financial press at a presentation in the City designed to trumpet his work on new ranges. He said talking to business reporters about fashion was like “talking to a brick” and told one female journalist not to touch the arm of his £600 Superdry varsity jacket with her “sweaty journalist palm”.

Dunkerton launched Superdry with the designer James Holder in 2003. Holder, who now runs his own design business, has also been tasked with developing new product for inclusion in its ranges as part of the overhaul.

Julian Dunkerton is the first to admit that Superdry is his obsession. “I live, breathe and wear Superdry,” the 54-year-old entrepreneur said recently of the fashion brand he co-founded 16 years ago. “I have other businesses, but Superdry is my obsession.”

After three Es at A-level put paid to his ambition of becoming a doctor, Dunkerton focused on fashion. Living off the Margaret Thatcher government’s enterprise allowance scheme, which paid budding entrepreneurs £40 a week, the public school educated son of a BBC producer started out selling clothes at Cheltenham market. That stall would morph into the successful Cult Clothing chain but Dunkerton really struck business gold in the early noughties when he teamed up with designer James Holder to start Superdry.

Superdry grew quickly, aided by celebrity fans like David Beckham, and in 2010 Dunkerton, who still owns 18% of the company, banked £80m when it floated on the stock exchange. The businessman, who drinks nine shots of coffee a day, shuns smartphones which he argues “clog” up people’s time with email. If he has any spare hours he fishes on the River Avon, near the company’s Cheltenham head office.

Dunkerton’s other interests include his family’s organic cider business and a chain of gastropubs and hotels in his native Cheltenham. He recently got remarried to the fashion designer Jade Holland Cooper who runs her own label.

Dunnkerton quit Superdry last year after a row over strategy but an interview last year contained a clue that he would find it hard to walk away: “I don’t want to sit on a fancy yacht and twiddle my thumbs,” he said. “If you were a brilliant tennis player you wouldn’t stop playing, would you?”

Dunkerton has said it will take several years to turn the business around after the company lost its way under the previous management team, and at the moment the numbers look grim.

He reported an encouraging start to the key Christmas trading period but was cautious about the all-important weeks ahead: “There remains considerable risk over the peak trading period against a highly promotional and competitive high street. This is against a backdrop of continuing macroeconomic uncertainty, particularly from the UK election and Brexit.”

The accounting error was part of a bleak picture with £10m of charges – £3.1m of which related to stock valuation and £6.9m to cover bad debts with business partners – contributing to the profit wipeout in the six months to 26 October.

The £3.9m accounting error, which related to the previous financial year, stemmed from the “overly complex” record-keeping process it used to track the cost of importing stock and moves between warehouses.

High street closures in 2019

Thousands of high street jobs have been lost this year as a result of high profile retail administrations and thousands more are at risk as Mothercare, Debenhams and Forever 21 prepare for closures. Here are some of the key industry names that have been affected.

Mothercare: Has 79 stores and 2,500 UK retail staff as its British arm prepares to go into administration.

Regis/Supercuts: Had 220 salons and 1,200 staff when it went into administration in October.

Bonmarché: Had 318 stores and 2,887 employees when it went into administration in October. It is still trading as it seeks a buyer.

Watt Brothers: The Scottish department chain had 11 stores and 306 employees when it went into administration in October. All the stores closed and the majority of jobs have gone.

Links of London: With 35 stores and 350 staff, the jewellery chain went into administration on 8 October but its sites are still trading.

Forever 21: Had three stores and about 290 employees in the UK when it went into administration in September. Stores are staying open in order to clear stock.

Albemarle & Bond: Suddenly shut all its 116 stores in September with the loss of about 400 jobs, even though it did not call in administrators. It sold its pledge books to rival H&T in September.

Karen Millen and Coast: Had 32 stores and 177 concessions, employing 1,100 people, when it went into administration in August. All sites were closed and the vast majority of staff made redundant after the brands were bought out by online specialist Boohoo.com.

Jack Wills: Had about 100 stores and 1,700 staff in the UK when went into administration in August. Bought by Sports Direct and 98 stores are still trading in the UK and Ireland.

Spudulike: Closed all 37 stores with the loss of about 300 jobs when it went into administration in August.

Bathstore: Had 132 stores and 529 staff when it went into administration in June. Homebase bought 44 stores saving 154 jobs and the brand now trades from 28 stores.

Select: Had 180 stores and 2,000 employees when the fashion retailer went into administration in May. In June administrators at advisory firm Quantuma carried out a CVA closing 11 stores with the loss of about 200 jobs.

Debenhams: Had 166 department stores and more than 25,000 employees when went into administration in April. No store closed immediately and the chain is now owned by its lenders but two will close before Christmas and another 20 in January when the group completes a rescue restructure expected to result in the loss of 1,200 jobs.

Pretty Green: Had 12 stores and about 170 employees when Liam Gallagher’s fashion outlet went into administration in March. All but one store and 33 concessions closed with 100 jobs lost but 67 saved as the brand was bought by JD Sports in April.

Office Outlet: All 94 stores have closed with the loss of 1,170 jobs after the stationery retailer went into administration in March.

LK Bennett: Had 41 stores and 500 employees when it went into administration in March. The brand was bought by its Chinese franchise partner, Rebecca Feng, saving 21 stores, all the group’s concessions and 325 jobs. But more than 100 jobs lost with the closure of 15 stores.

Patisserie Valerie: Had 200 cafes employing nearly 3,000 people when an accounting scandal prompted the chain to call in administrators in January. About 70 of the group’s 200 stores closed immediately with the loss of 900 jobs. About 2,000 jobs were saved when about 100 Patisserie Valerie cafes were rescued by Causeway Capital, more than 20 of which have since closed. 21 Philpotts sandwich shops were bought by AF Blakemore & Son. and four Baker & Spice cafes a were bought by the Department of Coffee & Social Affairs. Sarah Butler

It is not the first time Superdry’s accountants have got their maths wrong. In 2012, “arithmetic errors” contributed to a profit warning after it discovered a plus rather than a minus figure had accidentally been entered in its accounts.

“We have identified an isolated error totalling £3.9m,” the company said. “We have reviewed the recording processes and concluded that the record-keeping process was overly complex. We have now simplified the accounting.”

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James Yacoub, a retail analyst at GlobalData, said the figures showed little concrete evidence of improvement.

“Superdry continues to slip behind competitors who have far more refined propositions and are more in tune with their customers’ needs,” he said. “JD Sports, for example, has remained relevant to its core customer base by continuing to stock the latest and most popular athleisure brands as well as partnering with prominent influencers.

“Dunkerton remains cautious about Superdry’s potential over peak Christmas trading. Rightly so, as the brand attempts a transformational comeback amid one of the most challenging retail periods.”

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