Diary of a Dumb Investor: I was nearly duped into a fashion trap

Remember the news reports about the Russian neo-Nazi tee-shirts accidentally sold in Burton, the men’s clothing shop?

‘We will cleanse Russia of all non-Russians!’ it said in Cyrillic, a detail only noticed by a member of staff after they’d been on sale for a while.

That blunder didn’t stop us Brits adorning ourselves with often unintelligible writing. It always amuses me how people love to brand themselves with Japanese or Chinese script, be it with a tattoo or an item of clothing. It’s exotic.

One company is capitalising on this: Supergroup (SGP.L), owner of pseudo-Japanese fashion brand Superdry.

A 'challenging' year

Investors in the company had their experiences summed up neatly by chief executive Julian Dunkerton in May, who reported a ‘disappointing end to a challenging year’. This was a year that included three profit warnings and even ‘arithmetic errors’.

The shares have been heavily sold off for a year and a half, with some of the mass of fund managers who bought into the shares beating a hasty retreat.

Citywire’s own Smart Investor (writing in January) praised the group’s ‘highly impressive profit growth, double-digit return on equity, low debt and what may well be a quality product’, but then pooh-poohed the shares as he is worried about sustainability in the fickle fashion industry. The hyper-rational investor makes his decision based on his view of the fashion industry? Ha! How I scoffed on reading that.

Time for a turnaround?

Well, maybe not. I was all prepared to write about how the shares are good value, with management changes – Theo Karpathios, a co-founder and chief of wholesale and international, resigned last week – heralding a turnaround in the company’s fortunes. That’s what the analysts seem to say.

But I’ve realised that Smart Investor is right – Superdry’s heavily branded clothing is particularly vulnerable. As one fashionista told the Guardian back in April: ‘The last brand that captured the mainstream British public in that sloganeering way was FCUK. Superdry have taken over from them, but the market tires easily and moves on.’

That resonates. FCUK was so cool when I was about 16 (it looks like a swear word!), but no longer.

Going with my gut

This illustrates a couple of problems I’m facing. In my efforts to behave like a proper investor – I had even been comparing price to earnings (P/E) ratios for Supergroup – I had forgotten to think like a real person and use common sense. My gut tells me this brand isn’t a stayer. Plus I've consistently stated that I'm wary of investing in UK consumer spending.

And besides, I just don’t have enough cash to swoop on a good investment when I spot one. That was a blessing last week when I almost made a hasty investment in Supergroup shares when the news broke of Karpathios’s resignation. After all, analysts quoted in the press were saying that now could be the time to buy, even as the shares fell in response.