Financials
& Future Vision

Superdry is a brand designed for attitude not age with affordable, premium-quality clothing, accessories, footwear and cosmetics.

As we develop the breadth and nature of our product range, we continue to appeal to a much broader, aspirational age group. Those who want to feel amazing in what they wear and appreciate style, quality and attention to detail.

Already well established in the UK - our home market - we operate a significant and continually expanding international business, selling through our websites, wholesale partners, a network of franchise stores and, increasingly, independent stores. We are becoming a more efficient business as we improve our process from Design to Customer and refine our wholesale model.  Simultaneously, we are focused on expanding our business globally with a clear strategy for growing our Ecommerce business as well as our operations in key markets within Europe, North America and China.

The Group has a physical presence in 62 countries and 863 stores and concessions globally. We also have a successful Ecommerce business with 27 international websites across 18 countries covering 12 different languages.

We have gone from strength to strength in recent years, and our 2017 annual report (covering the period from May 2016 to April 2017) is testament to how well we are doing as a business. Here are some highlights:

• Total sales up 27.4% to £752.0m (was £590m in 2016)
• Underlying profit before tax up 18.4% to £87.0m (was £73.5m in 2016)
• Underlying operating margin 11.9%
• Retail sales growth of 20.8%
• Retail like-for-like sales growth of 12.7%
• Ecommerce sales growth of 35%
• Wholesale sales growth of 43.2%

Although our roots are in the UK, we are a truly global business:

• 72% of our total sales volume in 2017 was from outside the UK
• 98% of our new Retail space opened in the last year was outside the UK
• 89% of our Wholesale revenue was generated outside the UK

Our Retail estate, comprising owned, franchised and licenced stores, is growing rapidly:

• Our Retail footprint increased by 80 stores in 2017 to 555 Superdry branded stores globally
• 154,000 square feet owned store space was added, predominantly in Continental Europe
• Net 59 new franchise stores opened, increasing franchised locations by 23%
• We now have a physical presence in 62 countries with 863 stores and concessions globally

Euan Sutherland, our Chief Executive Officer, commented in the annual report:

"Superdry has made further significant progress this year, delivering growth in sales, profit and the ordinary dividend as we maintained momentum against all elements of our strategy. Our focus on delivering long-term sustainable growth continues, through a multi-channel approach that balances a disciplined owned and franchised store opening programme with further development of our re-engineered Wholesale channel and strong Ecommerce proposition.

Superdry is globally diversified and financially strong and we remain confident in our strategy to further embed Superdry's position as a global lifestyle brand. Investment in infrastructure is underpinning our global growth plans and creating future leverage opportunities while ongoing product innovation and new social and digital marketing campaigns are introducing new customers to the Superdry brand."

Financial year 2017 summary

The articulation of a clear four pillar strategy (Embed, Enable, Extend, Execute) in March 2015 enabled an organisation-wide focus on the consistent delivery of the key long-term opportunities that will establish Superdry as a global lifestyle brand. Superdry remains an opportunity rich organisation and we are confident in the continued delivery of sustainable revenue and profit growth supported by continued investment in people, processes and infrastructure.

Our success in financial year 2017 has been achieved by the continual improvement of our core product ranges and introducing new categories to excite, inspire and enhance the brand's relevance. The consistency of our revenue performance has been pleasing with similar levels of growth achieved in each half-year and positive like-for-like growth achieved in all channels: Retail, Ecommerce, which continues to deliver market leading growth, and Wholesale.

The Wholesale division delivered growth of 43% fuelled by material growth in the brand's franchise network, range enhancements and the final elements of the process improvements commenced in the previous financial year.

Our development markets in North America and China continue to progress in line with their respective plans. The break-even position delivered in the Group's North American operations was achieved in our second year of ownership in line with our acquisition plan.

Underlying profit growth of 18% reflects continued investment in those two development markets and growth infrastructure together with one-off migration costs incurred as part of the set-up of our two new distribution centres. Our growth plan across geographies, channels and categories will further reduce our reliance on any single operating segment and during the next two years we anticipate that we will leverage our investments as we continue to grow our revenues and deliver improvements to our Design to Customer process.

Embed

Our brand values for long-term sustainable growth

Embedding our brand values is a key element to realising our ambition to become a global lifestyle brand. The Superdry brand purpose defines the reason for being, creates a clear and concise brand story and a brand strategy that is relevant and actionable. Group-wide communication ensures that all colleagues become brand ambassadors through a real understanding, appreciation and awareness for what Superdry stands for.

A key element of the learning and development focus in the year has been the roll-out to 1,700 store based colleagues of a Sales and Service training programme. This programme serves to combine our colleagues' passion for Superdry with detailed product knowledge in order to improve customer experience and drive sales.

Colleague engagement levels are measured annually and we continue to see positive year-on-year progress in both response levels and the key measures of Trust and Engagement. We continue to invest in a number of initiatives targeted to address the specific points raised by colleagues. These include wider employment and progression opportunities through our participation in the National Apprenticeship scheme and ways to share in Superdry's success through Save As You Earn and Buy As You Earn share schemes.

From a product perspective, collecting customer and market data is key in enabling us to improve the customer experience by embedding customer insight into our ongoing range and category development processes.

We are committed to providing a compelling multi-channel experience for our customers and firmly believe that the brand's potential will be optimised through a combination of shopping channels, including stores. Recognising the need to continually develop the brand experience in-store during the year we opened two trial stores that were designed to introduce a number of new concepts to the store: to project better the wider product offer, convey authority in our core ranges such as graphic t-shirts, increase range intensity while increasing circulation space, and improve the use of technology.

Commercially the updated new store format targets improvements to sales density while also reducing the capital and operating costs of new and refurbished stores. The first two trial stores located in Manchester's Arndale centre and White City in London were of differing sizes; and tested varying levels of re-fit expenditure. The trading performances in both stores remain strong with uplifts in like-for-like sales of 20% and 10% respectively and have provided us with the confidence to undertake a roll-out refurbishment programme, starting with ten stores in the UK in financial year 2018. The concepts developed in the trial stores are also being introduced into all new store openings.

Enable

Future growth through investment in people, systems and infrastructure

Strengthening our teams

Our investment in people over the last three years has developed greater capability within core functions including design, merchandising, ecommerce and category management and introduced a strong and experienced leadership team.

During the year, in addition to restructuring executive responsibilities to better fit our future Design to Customer process, the leadership team was further strengthened by the appointment of Hugo Adams to lead the Superdry's marketing and business development functions, Simon Callander as Group General Counsel and Company Secretary and David Hennessey, who joined us in June as our new Chief Information Officer.

Optimising the Design to Customer process

As we optimise the Design to Customer process, we will improve our speed to market, eliminate wastage and reduce our operating costs. Consistent with our approach to any significant change, we will adopt a measured stance, introducing initiatives and working practices progressively so as not to create undue risk to the underlying business. We are confident that the changes we are planning are well proven, best practice in the retail sector and suitably adapted to our business model.

Early progress has been encouraging aided by establishing a single global merchandising function consolidating the previous retail and wholesale teams. Global range planning disciplines are now well established leading to measureable improvements in the key value creating metrics including crossover between Wholesale and Retail ranges, joint buying and overall option count reduction.

Direct sourcing

Our established in-market sourcing operations in India and Turkey continue to drive efficiencies through increasing the level of product that is direct sourced. A Chinese sourcing office, located in Shenzhen, will open later in 2017 enabling the percentage of direct sourced purchases to increase from c.65% towards our medium term goal of 80%.

Infrastructure development

Investment in infrastructure to support the growth and development of the business will continue over the medium-term. This will focus on a continued improvement approach and enhancement to information technology applications introduced over the past four years and enhancements to physical infrastructure to benefit Superdry. In order to protect the quality of execution, only one significant change will be executed each year.

Our primary goals are to establish in-territory multi-channel distribution centres close to each of our markets, delivering better service and accelerated fulfilment at a lower cost, harmonising inventory through the creation of a single stock pool and the systems and processes necessary to support the Design to Customer process. We will also progressively invest in warehouse automation to improve efficiency and service.

As the first step in delivering this ambition we successfully implemented two new regional distribution centres in the year in Grobbendonk, Belgium and Pennsylvania, USA. These operated successfully through peak trading, each serving a single channel only and their operation will be extended in financial year 2018 to fully serve each market on a multi-channel basis, including the planned integration of the currently outsourced USA Wholesale logistics operations into Superdry's network.

Extend

Our key categories to achieve our brand growth potential

Our product opportunities

Continual range development is a core business capability introducing newness, in the form of shape, fabric, design or branding, to each successive season. This opportunity is therefore equally relevant for heritage or new categories.

We believe there is a clear opportunity for us to more broadly and confidently communicate our "ownership" of certain key categories, such as jackets or graphic t-shirts. Our Jackets campaign in autumn 2016 combined range development and social media based communication of the breadth and technical benefits of our range. While the consistent market trend of 'the padded jacket' plays perfectly to our brand heritage we believe we have extended the iconic status clearly associated with the Windcheater to other ranges including Fuji, Bombers and Rookies. The success of the campaign provided valuable insight that will support future seasonal campaigns.

The opportunities to extend Superdry into adjacent product categories and ranges that are natural extensions for the brand are equally significant. In the year we have further developed our Sport, Premium, Snow and footwear ranges which continued to gain traction with our customers and tactically introduced a widened range of gifts to support the key peak trading period. Our premium ranges, both Superdry branded and those branded in collaboration with Idris Elba, provide a natural range and price hierarchy extension and have developed each season following the insight gained from our customers.

Focusing on the opportunity in Sport and Womenswear

Superdry Sport remains a natural evolution for the brand and has shown significant growth in all markets. The "ath-leisure" element of our range provides the natural entry point for customers before widening their buying to more technical products, where options are expanding and building range credibility. Looking forward we intend to introduce a number of dedicated Sport "shop-in-shops" in a number of our larger stores, enhance the technical capability of our range including improved moisture wicking, weather tolerance and higher visibility and further develop our footwear offer to participate in this key part of the market.

The long-term strategy to grow our Womenswear category to the same value as Superdry Menswear continues to gain traction, with Womenswear again growing marginally faster than Menswear driving an improvement in participation to 36.5%.

This brand strategy targets a more feminine approach to both our product and customer experience. Our in-house category and design teams have broadened our core ranges to better match and appeal to our identified customer profiles and introduced more regular injections of new ranges to encourage repeat purchase. Within store, the merchandising developments delivered within the Next Generation store re-fit programme provides the inspirational story that women are looking for at the point of purchase.

SuperDesign Lab provides dedicated innovation capability

Having developed the capacity and capability of our design team, the business is now well placed to continue its planned programme of core product development. This programme will be complemented by the SuperDesign Lab which, led by James Holder, will focus on the creation of further extensions of the Superdry brand into adjacent lifestyle categories and providing a fast route to market where commercial opportunities are identified.

Execute

Growth opportunities in new and existing markets and online

We believe we will optimise our customers' brand experience and the ultimate scale of the brand by combining an ecommerce proposition with a physical store presence, achieved via owned and franchised stores and wholesale partners. Specifically, our research has shown that multi-channel customers are more valuable to us than single channel customers as they spend more often and have greater brand loyalty.

Superdry stores

A key driver of our growth strategy is the expansion of the store portfolio balancing owned stores of between 4,000 to 6,000 square feet in major city locations or prime locations in shopping malls with franchised stores operating in smaller catchments. At the end of financial year 2017 the brand operated from 555 stores across 49 countries with 220 owned, 319 franchised and 16 licensed stores.

Our focus for owned stores continues to be Continental Europe, where we remain under-represented and deliver strong returns on capital with, on average, a 25-month post-tax payback against a target of 30 months. In financial year 2017 we opened 124,000 square feet of new space in Continental Europe through 14 net new stores. Germany continues to be a priority market for the brand and we are pleased with the overall performance of the store portfolio which has grown to 31 owned stores and 14 franchises, since our market entry in 2012.

Continental European owned stores at the year-end comprised 405,000 square feet of trading space, an increase of 44% during the year, and represents 38% of our total retail estate.

Cognisant of consumer trends towards ecommerce our approach to new stores remains cautious, being capital disciplined and demanding lease flexibility in all cases. While considerable opportunity for new owned and operated space exists, looking forward we anticipate opening c.75,000 square feet of owned store space in Continental Europe each year.

A net 59 franchise and three licence stores were added to the estate through the financial year representing an additional 95,000 square feet of Superdry sales space. These openings included market entry into Croatia, Israel, Romania, Russia, Slovakia, and Slovenia. We have also commenced a programme of franchise store re-fits to continue to modernise and strengthen our third party store estate alongside the Next Generation store re-fit programme in our own store estate.

Increasing ecommerce penetration

Our ecommerce objective is to make it inspiring and easy for people across the planet to buy Superdry products and deliver an amazing end-to-end experience centred on a sector leading delivery proposition. As in recent years, online remains the fastest growing route to our customers with year-on-year sales increasing by c.35% and ecommerce participation up to 25.9% of total Retail sales.

This growth reflects the benefit of small incremental improvements to the customer on-line experience and includes: image based search on search engines such as Google; use of social media to increase awareness and keep customers engaged, for example, the introduction of #mysuperdry to the www.superdry.com website; changes in creative style of the product imagery and fully responsive technology implemented throughout the site. Our plans for financial year 2018 include integration of a new order management system into our operations that will facilitate the launch of regional fulfilment capability in our new Belgian warehouse allowing us to service Continental Europe from that location.

Our partner programme, where we offer our product for sale on third party retailer sites, drives incremental growth by accessing a new customer base whilst controlling the brand experience. We have seven partner sites currently, including Zalando, La Redoute, and The Iconic. The partner programme has seen good growth during the year and now represents 14% of our Ecommerce business.

Customer interaction with each of our 27 fully localised websites continues to be led by mobile use; 67% of visits originated from either a mobile or tablet during the period, with visits from mobiles having grown by 34% year-on-year.

Improving our Wholesale operation

The Wholesale division has shown substantial growth throughout financial year 2017, with a consistent delivery of over 40% year-on-year growth in each half of the financial year, and continues to increase its significance within our income and operations. This year has seen the crystallisation of process improvements made in prior years, expansion of European Wholesale sales teams and showrooms, and investment in best-in-class trade shows and exhibitions.

Financial year 2017 saw double-digit growth in our forward order books and was supplemented by increased in-season sales growth facilitated by enhanced inventory availability. Continental Europe continues to be the key growth driver with more than 30% growth in revenue reaching more than €190m. While some of the sales increases achieved in the year are one-off in nature as we step changed our operating processes, we anticipate that the Wholesale division will deliver sustained double digit revenue growth in the medium-term.

Looking forward we also anticipate advances in aligning our Wholesale and Retail operations, offering both economies of scale to Superdry as well as increased choice and flexibility to customers. This long-term strategy will continue into financial year 2018 and beyond as we move forward with our Design to Customer initiatives and improvements.

Developing new markets

Looking long-term we have continued our development of two markets that represent significant future growth opportunities.

North America

Establishing a successful presence in North America is an important and natural step to realising our global ambition. North America provides us with the opportunity to enhance our brand and build significantly the long-term value of our business. Progress has been made in resetting the USA business and through remedial actions taken we have seen a positive customer response during the year from our Retail and Wholesale channels that we acquired in 2015. Store trading improvements, represented by a strong like-for-like performance, reflect the introduction of a broader product range, better price architecture and more capable store colleagues.

During financial year 2017 we opened seven stores as part of a trial which enabled us to experiment with different store formats in different types of location. These stores were predominantly located in the North-East of the USA and reflect a full Superdry offer, representative of that seen in Continental Europe. We are confident that we have secured good locations at appropriate rents and performance in these stores to date is encouraging. We will use the learning to develop a new store opening programme that will lead to the opening of up to ten new stores in financial year 2018, mainly located in clusters within major cities such as Boston and Washington DC. We also plan to open a flagship location on the West coast in Los Angeles during the coming year.

Overall financial performance continues in line with our initial plan, with the Superdry's North American operations breaking even in our second year of ownership.

China

China is an exciting market and is forecast to overtake the USA as the largest apparel and footwear market in the world. Customer tastes are evolving from luxury brands to brands influenced by "pop" culture and we believe that the Superdry brand, with the right product, pricing model and infrastructure, is well positioned to be successful. We have a ten-year minimum 50:50 joint venture agreement with Trendy International Group ("Trendy").

During the year, we have worked with Trendy to establish an experienced joint venture team who manage the Chinese business with our involvement focused on strategic direction, product and brand support and supporting store opening and marketing activities. Trendy provide logistical, financial processing and IT support in addition to people development and market knowledge.

During financial year 2017 we opened five trial stores with a sixth opened in May 2017 and three franchises. If the operation of the trial stores is successful we plan to undertake a measured roll-out programme using a combination of owned and franchised stores.