Earnings Transcript for SDRY.L - Q2 Fiscal Year 2024

Operator: Good morning ladies and gentlemen, welcome to the Superdry plc Interim Results Investor Presentation. Throughout this recorded presentation investors will be in listen-only mode. Questions are encouraged, it can be submitted at any time using the Q&A tab situated on the right hand corner of your screen. Just simply type in your questions at any time and press send. The company may not be in a position to answer every question, it receives during the meeting itself. However, the company can review your questions submitted today and we'll publish those responses, where it's appropriate to do so. Before we begin, we'd like to submit the following poll and if you give that your kind attention, I'm sure the company would be most grateful. I'd like to hand over to Julian Dunkerton, CEO. Good morning.

Julian Dunkerton: Good morning everyone and welcome to the call. I'm joined today by Shaun Wills, our CFO, to take you through our results for the first half of the 2024 financial year. In a moment, I'll hand over to Shaun who will run through the numbers. I will then give an overview on the strategic progress we have made as part of our turnaround program before we end with some Q&A. But before we begin, however, I would just like to address what has clearly been a particularly challenging period in recent months, in respect of movements in our share price. The market clearly perceives there to be a high level of liquidity risk within the business and this has had a negative impact on recent share price performance. As the group's largest shareholder, I would like to stress that I understand people's frustration. But what I'd also like to say, is that we are taking a number of steps to help put this right, and that is precisely what we intend to talk about today. So without further ado, I would like to begin with some of the highlights for the first half. The first half of the year has been characterized by a challenging consumer retail market. Whilst financial performance has proven softer than anticipated, this has clearly been impacted by a number of external and macro factors as well as some of the strategic decisions taken as part of our turnaround program. Such as the continued clearance of aged stock. However, despite the near-term challenges, we have continued to make significant progress over the half year. Our cost efficiency program is set to deliver in excess of £40 million worth of savings in this financial year, with over £20 million already achieved in H1. On inventory, our program to clear aged stock continues, and we are projecting an inventory that will reach approximately 7 million units by the end of this financial year, down from a peak of about 19 million in 2019. We agreed a further financing facility of up to £25 million with Hilco Capital and post the period end, completed our second Class 1 transaction, this time in the South Asian region. On product, we have continued to innovate whilst staying true to our heritage, placing greater focus on transitional lines, and continuing to manage our seasonal option count more intelligently. The first half of the year, has been another period of exceptional transformation and development for Superdry and for our turnaround. And we continue to make great operational and strategic strides, and this is something I will cover in detail in the slides ahead. Before I do however, I would like to turn the call over to Shaun who is going to run through the financials.

Shaun Wills: Thank you Julian and good morning everyone. I'd like to begin by turning your attention to Slide 5, which looks at the income statement. Group revenue decreased by 23.5% to £219.8 million, which was driven by softer performance from our Retail segment and continued difficulties in wholesale. Clearly, this is a disappointing result and something I'll endeavor to cover in more detail on the next slide. Our gross margin however, improved by 1.9 percentage points, which is largely due to the change in channel mix following the contraction of wholesale revenues. And it's worth noting that the margin continues to come under pressure from our ongoing program to clear aged inventory. Operating costs are down significantly on the prior period, which comes despite broader inflationary pressures and reflects the impact of our strategic cost reduction program, with now over £20 million worth of costs taken out of the business in the first half. Despite that positive work on costs, the softer top-line performance and the increased financing costs of £9.3 million do result in an adjusted loss before tax for the first half of £25.3 million. Now those finance costs are up on the prior period due to the higher arrangement fees on loans and of course overall a higher net interest expense. This is also coupled with higher rates of lease liability interest following the Bank of England base rate rises. Adjusting items of £28.6 million have resulted in the Group reporting a statutory profit after tax of £2.8 million. These adjusting items are composed principally of the income received, £36.3 million, from the sale of our brand rights in the Asia-Pacific region and they're offset by an IFRS 16 non-cash impairment charge of £10.2 million. Now whilst the agreement for the APAC sale was completed in the previous financial year, the shareholder vote on this transaction was concluded on the 30th of May 2023, and therefore it's reflected in our H1 reporting accounts. Turning to the next slide on revenue. As I mentioned, Group revenue was down 23.5% over the period. Stores were down 9.9% and E-commerce was down 19.1% with both being impacted by the challenging trading environment, and the persistent pressure that higher levels of inflation have had on consumer spending, but also impacted by the unseasonal weather. We saw exceptional heat across Europe and exceptional rain across the U.K. through the summer followed by one of the warmest autumn seasons on record, which doesn't help when we're trying to sell heavyweight winter coats. And we also had our ongoing stock reduction program's clear-aged inventory, which did put a lot of discounted product into the market. E-commerce was further impacted by a profit-focused reduction in spend on digital marketing. As a business, we carefully monitor the marketing spend and where the costs become prohibitively high, we do trade off top-line benefit for a better level of profitability within the channel. Wholesale continues to underperform the remainder of the Group and this segment was down 41.1% over the period. And decline being a result of a combination of factors, declining volumes and structural changes within the segment, but also strategic decisions taken by the business. So not only have we been impacted by financial difficulty experienced by key partners in the U.K. and mainland Europe, which has resulted in some lost accounts, but we've also taken a number of strategic decisions that have led to an anticipated negative impact on performance, which includes the decision to close our U.S. wholesale operations, as well as the brand IP sales in non-core territories. Structurally, we continue to see more business move to third-party E-commerce sites, which is invariably going to have an impact on sales and partner confidence. And it's also worth pointing out that wholesale, is often subject to large swings in performance, given the timing of stock intake and dispatches, which can skew year-on-year comparisons. This does remain a challenging time for wholesale. However, the stabilization of the core business and the revitalization of routes to market is not a quick fix, and our efforts here remain a work in progress. In terms of current trading, this has improved somewhat since the half year, although the picture does remain challenging. While Superdry's long-standing strength in outerwear has resulted in some encouraging sales during the spells of colder weather, particularly since Christmas. The abnormally mild autumn that happened over the peak Christmas trading period, did negatively impact group revenue, which is down around 13.7% when, compared to the same period last year. As documented in recently released figures from the Office of National Statistics, December saw a sharp drop in U.K. retail sales, which was actually the most since the U.K. was in COVID lockdown. With consumers taking advantage of Black Friday promotions to complete their holiday season shopping earlier. Those challenging market conditions, the heavy discounting, we saw across the sector in the lead up to Christmas and the milder weather, have all combined to impact our retail performance. And this is reflected in the numbers with stores and E-commerce both down just over 10%. Meanwhile, wholesale was down around 38%, which is broadly in line with the performance from the first half. I'd now like to turn to the next slide and look at our margin. The gross margin for the Group at the half year was 54%, which was up 1.9 percentage points on the same period last year, and driven largely by the changing channel mix, which I explained earlier, following the contraction of wholesale revenues, as well as some price inflation. This was offset by markdown participation to clear some of that aged stock I've talked about. You'll notice stores and E-commerce are both down on the prior period, which is a result of those efforts to clear that aged inventory. And specifically within e-commerce, there is some dilution as a result of the higher mix of third-party sales, where we trade off third-party websites, because here commission charges are included in the margin. Wholesale saw a small improvement of 2.1 percentage points, followed some price inflation and clearance taking place at more favorable rates. Whilst it's our objective to have a full price stance to support the margin and promote a stronger brand, a core focus of the business at present is clearance of our aged and excess inventory, which we've done very successfully, but does have a slightly negative impact on that margin. As we reach levels of stock more suited to the ongoing needs of the business and therefore conduct less clearance activity, this will naturally reduce that downward pressure. Difficult though this period's been from a sales perspective, we are confident we're moving in the right direction as a business, and this is no better evident than in some of the work we've been doing on costs, which I'd like to look at on the next slide. As Julian mentioned at the top of the presentation, our strategic cost reduction program is now set to deliver an excess of £40 million worth of savings in this financial year, having already achieved £20 million in the first half. Those savings have come across several areas, which include procurement, stores and logistics, and Julian will provide a bit more detail on this a little later. And whilst - the cost to achieve those savings have largely been incurred in the previous financial year, obviously we're still not immune to external inflationary pressures which will serve to offset some of the savings made, but nevertheless we consider this an excellent result. Our selling and distribution costs are down 20.8%, driven by a strategic reduction and some volume related savings. And our central costs are down by 22.2%, as a result of our ongoing efforts to renegotiate and mitigate cost increases on supplier contracts, as well as some headcount reduction that we've made across our head office. The other gains of £10.6 million are lower than last year, and this is largely down to a £17.2 million gain on FX, we saw last year, which is not repeated this year. And in totality, that means our operating costs before adjusting items are down 16.1% in the half year, or 21% excluding those movements in other gains, which we think is a fantastic result and real validation of the work being done to manage down our fixed cost base, to more appropriate levels. I'd like to now move on to the balance sheet, and the recapitalization work we've been doing, which is covered over the next few slides. Over the course of the last year, we've taken a number of steps as a management team to strengthen our balance sheet and alleviate some of the liquidity challenges that, the business has faced. And I think many of you will be familiar with most of, what is shared on the slide. Just thought it was worthwhile providing a reminder, of just how much we've done in that short space of time. So back in December 2022, we secured refinancing for the business in an agreement with Bantry Bay Capital, which was a facility for up to £80 million over three years, albeit subject to a headroom cap. This was followed by steps taken in May 2023 to inject much needed liquidity into the business, with a first brand IP sale completed for various countries in the APAC region, which generated just over £36 million, as well as a 19.1% equity raise, which gave us net proceeds of just over £10 million. In August, we unlocked a further £25 million of borrowing in an agreement with Hilco Capital, which was designed to help mitigate that headroom cap, I referred to earlier on the Bantry Bay facility. And finally, and most recently, we completed a second Class 1 transaction of the year, when we agreed a joint venture and disposal in the South Asian region to our partners Reliance Brands, generating net proceeds of around £28 million. As we move through 2024, cash management will remain a critical area for Superdry, and whilst the steps we've taken have gone some way to supporting the balance sheet, management will absolutely continue to monitor liquidity closely, and I'd like to remind you of some of the levers we can pull, if we're required to improve our position further. This clearly involves additional brand right sales in non-core territories, and also increasing our levels of stock clearance activity and further reductions in costs. And we'll continue to keep the market updated, on any material changes to this position, as we move through the remainder of the financial year. So moving on to Slide 10, which looks at the balance sheet in a bit more detail. Our net working capital has reduced during the period, which is largely due to the continued targeted clearance of older stock, as we also drive efficiencies on our working capital through reduction in options, in currencies and lines, and develop more efficient delivery profiles for the business. This has brought the value of inventory down by over 24% to £130.9 million, which is significant achievement after the reductions delivered in previous years. Trade receivables decreased by around 32%, and payables reduced by over 24%, both of which were in line with the contraction in revenues, particularly within wholesale and also in stocks. Net cash and cash equivalents were £27.8 million at the period end, but given the drawdown on our ABL facility, our net debt is £28.9 million, which I will cover on the next slide. Overall, our balance sheet at the end of the period shows a net liability of £41.4 million versus a net asset position of £82.5 million at the end of the first half of the prior year, and really that just reflects the number of accounting adjustments we made as part of the year-end results at FY '23, which included a complete write-off of our deferred tax asset on the balance sheet, which was standing at over £70 million. And an impairment charge of over £40 million, the majority of, which was levied against our store estate. Turning now to our net debt position, net debt at the half-year was £28.9 million. I think it should be noted that the half-year coincides with our heaviest borrowing period, and therefore throughout the rest of the year - we should end up in a better position, and cash of this morning was around £30 million in the bank. That £28.9 million was down from £38 million at the same point last year, but at marginally on our year-end closing position of £25.6 million. The walk on the slide displays the movements between our year-end closing figure and where we are now, or where we were at the half-year, sorry. Operating activities delivered a £31 million benefit, which is largely a result of the cash received from the APAC disposal, offset by some of the softer sales performance, and our net working capital reduced by £4.7 million as our focus on inventory reduction has continued, whilst we saw relatively low levels of CapEx at £3.3 million. We made lease repayments of £27 million, and as I outlined earlier, our finance costs were higher in the half-year at £9.3 million, due to higher arrangement fees on the loans, and higher overall interest rates. This was coupled with higher rates of lease liability interest following Bank of England base rate rises, which is all under IFRS 16. The equity raise, we completed in May generated cash of just over £10 million, and the result of these movements, and some smaller movements in FX and lease incentives, is that the net debt ended up at the minus £28.9 million I already mentioned. What's not visible here is £28 million that was received from the joint venture and disposal in the South Asian region, which completed in November, and therefore that'll be in our full year accounts. As I said before, liquidity remains a key area of focus for the business, and as we go through 2024, we will clearly continue to keep the market updated on any changes in our position. Just before I turn the call back to Julian, I'd like to expand a bit further on the inventory position. So stock has been a critical area of focus for the Group over the last five years as we look to drive a simplified and leaner set of business operations. FY '23 has marked our largest ever year-on-year reduction of old stock, with total inventory reducing by 2.8 million units. This year is projected to be similar, and our total inventory forecast to reach around 7 million units by the year-end. Now what that will mean is - in the five years since 2019, we would have cleared around 12 million units of old stock from our business. That's a huge number, and to put it in perspective, that's around 2.5 million additional Superdry products sold into the market every single year for the last five years, simply to clear our stockpile of aged inventory. Clearly, this presents challenges for the business, not least the significant downward pressure, the elevated levels of clearance put on the margin, but also the pressure it puts on full-price sales from putting so much of that stock into the market. Now, as inventory reaches a more optimal level for ongoing requirements, that pressure on margin will reduce, and with less stock being cleared and sold by partners at lower prices, that should help provide support for our full-price trading stance. And it goes without saying that our efforts in this area, remain ongoing, and we look forward to providing a further update at full year. And with that, I'd like to hand the call back to Julian to take you through the turnaround program in a little more detail. Thank you.

Julian Dunkerton: Thank you, Shaun, and I'd now like to spend some time looking at our turnaround program. As I said at the top of the call, this half year, has been full of change for Superdry, but our mission, which is to be the number one premium sustainable style destination, and the four pillars that support that ambition, remain steadfast. We continue to drive the brand and business forward, with actions across all four pillars, but notably our focus in recent months has been on making it happen, and more specifically, making our turnaround happen. And I would now like to spend some time looking at what our turnaround program encompasses and the progress that we have made in H1. Our turnaround program has three core objectives. First is improving efficiency, which is all about right-sizing our operating cost base. Second, driving simplification, which looks at reshaping and simplifying our operations, to focus on our core markets and territories. And finally, we are establishing our target operating model, which is all about creating an operating model more suited to the ongoing needs of the business over the longer term. Collectively, the objective of this work is to forge the Superdry of the future and position the group for long-term success, and we've made great progress over the half year, and I would like to share an update with you on each of these individual areas, beginning with our efforts to improve efficiency. Right-sizing our operating cost base is critically important to the future of Superdry, and I'm pleased to report our cost efficiency program is on track, with more than £20 million of cost savings achieved in H1. However, I would like to stress, this is not a one-and-done approach. This is not a one-time cost reduction drive. We continue to look for value on an ongoing basis, managing costs down across the organization, something that is evident in our approach to procurement, where we are focused on the renegotiation and mitigation of cost increases on new and existing contracts. As we reshape the business, we are doing so with costs in mind. On stores, we continue to reshape our store estate, by exiting loss-making stores, as well as introducing initiatives to improve the profitability of our remaining store estate, such as our successfully trailed vintage concessions. And during H1, we closed 12 stores. We've also made a targeted cost reductions at head office, as well as the strategic decision to exit our U.S. wholesale operations. And finally, we're improving our processes of making savings across our logistics. Here, the focus has been on non-volume operational savings across our distribution network, with substantial progress made in the half year, and more to come in 2025. Our cost efficiency program marks a significant milestone for the group. However, I really must emphasize that this activity, does not limit our sustainability ambitions, product quality, or customer experience, all of which will remain right at the forefront of our minds. We've made great progress on costs, with more than £20 million of savings achieved in the half year, and we're really looking forward to continuing to update you on our progress as we strategically realign our cost base with the requirements and shape of the business moving forward. Turning now to our simplification efforts, we continue to simplify Superdry. Superdry is a brand that at its peak, touched all corners of the globe, but did so via more traditional routes to market. We are simplifying this model with our IP sales and the reshaping of our store estate. We're getting our product in front of our customers in a more efficient manner. IP sales enable management to focus on growing the brand and sales in our core territories, where we have the strongest expertise. And this allows local experts in such territories, the opportunity to manage the brand on our behalf, building perception and driving growth in markets, where we are underrepresented. We have completed two transactions of this nature over the last year, and it goes without saying that we're continuing to assess, further opportunities around the world as they arise, which also have the much needed benefit of providing liquidity to the business. On stores, we're continuing to focus on right-sizing our global footprint, which means focusing on our core territories, exiting loss-making stores and improving the profitability of our remaining estate. It goes without saying that the exiting of loss-making stores remains a major priority for the business, both from a cost and simplification perspective, and we are hopeful of further progress in this space as we move into the 2025 financial year. Underpinning this simplification is our desire to position Superdry for long-term success, and right now we are building the Superdry of the future. And I'd like to touch on some more of the great work we're doing on the next slide. As we progress through our turnaround, we're establishing our target operating model. This is happening right across Superdry, but some of the areas I'd like to touch on include our product, customer experience and operations. Product continues to be at the heart of everything we do, and some of the highlights from H1 have been our success with Afghan coats, which saw similarly positive response this year to last year. Our Athletic Essentials range, targeted at the under 25s, has seen significant success, while our Party range continues to prove extremely popular. We are also continuing to manage our option count more closely, creating a more cohesive range. Option counts have halved from over 4,000 to just over 2,000, while we are balancing our range with far more transitional products, such as overshirts and lightweight jackets. As these products become more embedded in our range, we are hopeful they may reduce some of our reliance on outerwear, and leaving us less exposed to unseasonal weather. In terms of the consumer experience, the focus is both in-store and online. In-store, we are building out consumer destinations, which are areas of the stores, which are showcasing small capsule collections, such as the Merchant Store Collection, which is creating a more captivating in-store journey. Meanwhile, within E-commerce, we're introducing a data-driven approach to digital marketing, which will really help prove the value of our campaigns and enable more sophisticated forward planning. Operationally, we continue to closely manage the clearance of aged stock. We project closing inventory to be close to 7 million units this year, which is significantly lower than prior years and a level far more optimal for the ongoing operation of the business. Creating our future operating model is not going to happen overnight, but we're making great progress and I'm really thankful to the team for all their hard work. As you can see, Superdry is evolving. There are substantial changes that are being made right across the business, and our program to improve efficiency, drive simplification and establish our target operating model is continuing at pace. We look forward to continuing to bring you on that journey with us. I would now like to wrap up with a quick summary. Our turnaround plan, which is designed to position the business for long-term success and return Superdry to profitability, has seen significant progress in the half year. The financial performance of the business has been impacted by the nature of the consumer retail market, the unseasonable weather and the underperformance of wholesale. But also by some of the strategic decisions we have taken, such as to close down our U.S. wholesale operation, and our continued clearance of aged inventory. Nevertheless, the core elements of our turnaround remain in clear focus. We continue to improve the efficiency of the business and are currently assessing plans for the next financial year to reduce fixed costs even further, with the expectation that we will be able to make another significant reduction. Our simplification will continue with appetite for further brand IP sales and the reshaping of our store estate. And finally, our operating model is becoming increasingly agile and aligned with the needs of the business, as evidenced in the progress we have made on our inventory reduction program. The brand and business evolution at Superdry continues. It's a long journey, it's not been easy at times, but I firmly believe we are taking the right steps for the business and the brand to return Superdry to profitability. That concludes the formal presentation. And I'd like to thank you for all for listening, I would now like to open up the lines for questions.

Operator: That's great Julian, Shaun. Thank you very much indeed for updating investors this morning. Ladies and gentlemen, please do continue to submit your questions using the Q&A tab situated on the right-hand corner of your screen. But just while the company take a few moments to review your questions submitted already, I'd just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A will be available via your Investor Meet Company dashboard. And Julian, Shaun, as you can see, you've had a number of questions submitted through attendees this morning, and thank you very much to everybody for your engagement. Matt, if I could just maybe hand back to you just to moderate through that Q&A, and then I'll pick up from you at the end.

Matt Horwood: Thanks, Mark. Yes, so some questions have come in through the web chat. Thank you very much for that. So the first question comes from John Stevenson, who asks, does the reduction in stock and working capital impact your ability to draw down on the Bantry Bay facility going into this year's working capital peak?

Shaun Wills: It's a smart question. In theory yes in work, because obviously the lending facility, is based on our stock and our wholesale debtors. In reality, a lot of the clearance of stock has come from aged stock, and the vast majority of our borrowing is focused on current stock and stuff goes to three seasons old, as well as stock in transit, stock on the water coming into us for future seasons. So the reality, it does affect it a little bit, but it's quite small. And also some of that older stock we're clearing is provided against. So the value on the balance sheet is reasonably small in the first place. So it doesn't have a massive impact. But clearly, we do have to keep a close eye on that, because it derives how much we can borrow at any point in time.

Matt Horwood: Thank you. So, we have a question from Michael, who asks around the weather seeming to be a regular theme of softer performance. How can you address this and ensure stronger performance for the business, he asks?

Julian Dunkerton: So, I think the most important thing, is to have less reliance on heavy jackets. Obviously, when you do get a cold spell pre-Christmas that is hugely beneficial. But actually, as we saw with these weather conditions, it has a detrimental effect if it's too warm. So, more emphasis on knitwear, on fleece, and on transitional products. So sort of mid-weight products, which I think we'll all agree that particularly in the U.K. But also this year in Europe, that would have made a big difference this autumn. So, we've got a large focus on that to just smooth - smooth those weather patterns out for us from a trading point of view.

Matt Horwood: Thank you, Julian. So, we have a question here from Mark, who asks around any potential need for new capital?

Shaun Wills: Not at this stage. I think there’s a lot of stuff going on in the business in terms of cost savings, which this year have been about some of the more low-hanging fruit, and next year will become about - more of the structural things within the business. The aim of that is to create efficiencies that will get the business back to profitability and therefore self-sustainable. We should be able to do that within our existing borrowing facilities, with some of the exercises we have planned. We would always keep it under consideration. But I think you heard in the presentation, we're sitting on around £30 million of cash right now, which is more than anticipated, because those cost savings have over performed. So at this moment, the answer to that would be no.

Matt Horwood: Thank you, Shaun. David asks around Superdry's target group and what has been done within the business to target this group better?

Julian Dunkerton: So, there is no one target group. You know, both by age and demographic, the most important thing about Superdry, is how broad a consumer group it has as a customer base. But within the range, obviously, we are being far more targeted and segmented in our sort of mini ranges within the brand. And whether that's Athletic Essentials or the Merchant Store, whether it's Henley's or Fleece. The product is very much designed with a very particular consumer and age group in mind - a more sophisticated approach than we've ever had, I would say, and much more sort of targeted approach.

Matt Horwood: Thanks, Julian. So, we have a question here from John for Shaun, who asks, do you expect a complete stock clearance this year? Is there any reason why the FY '25 achieved margins shouldn't be higher as a consequence?

Shaun Wills: No, there is no reason why that shouldn't be true. There will always be a little bit of timing to do around the stock file. That's just the nature of retail. But the vast bulk of what we've tried to achieve will be done by the end of this year. I think, as you heard, we'll have gone from 19 million units down to somewhere between six and seven by the end of the year. That's a huge shift over that five-year time period. And we've had to push just under 3 million units a year into the market to achieve that. So, I mean, I think it will help us with our full price sales. It will diminish the amount of stuff we're selling at lower price. So there should be a double margin boost that comes through that. We are already starting to see some of that materialize as we've gone through the second half so far. So I think that will become the main story for us going into FY '25 and beyond.

Matt Horwood: Thank you, Sean. And so, we have a question from Emmanuel who asks, what is the optimal level of stores?

Julian Dunkerton: I think the answer to that, is not a finite number. The optimal number is the number that continues to be profitable. So, if you have an unprofitable store, it either needs to be renegotiated or exited. And we are fully in that process. So, the reason why you can't be finite about it is, because obviously we're in negotiations with landlords to move unprofitable stores to profitability to maintain their presence. So it's impossible to give you an exact number, but the answer is to make sure that they're all profitable.

Matt Horwood: Thank you, Julian. A question here from Sian who asks, the H1 net debt is before proceeds from the South Asia IP sale. What's the net debt now after the holiday season and all IP proceeds and where do you hope to be at the end of the financial year?

Shaun Wills: So, I think as we said in the presentation, we're currently running at around £30 million of cash. So this is our healthiest point in the year. We've obviously sold down a quite - vast majority of all the winter stock, and have the cash in from our wholesale partners for the winter season. So, we now start to spend money on our spring summer stock, which is coming in as we speak. And that will put us through our first mini trough of this year. And that will sort of coincide with the year end. I anticipate that our debt levels, at that point will be broadly in line with last year. So somewhere between £20 million, £30 million of net debt.

Matt Horwood: Thank you, Shaun. So, we have a few more questions that have come in here. So, we've got one from Stephen who asks one for Julian. Whilst markets are difficult, how confident do you feel about the future?

Julian Dunkerton: Surprisingly, when you obviously look at the share price, I'm actually very confident, because I know we're doing the right things. I know the product is getting better. I know the model is improving. And I know we're reducing our costs quite dramatically. So, we are right-sizing our cost base to deliver a strong future. And the product genuinely is getting better. So the reduced option count has meant that the quality of the options being offered is starting to really ramp up. And that means the three pillars of creating a product, which are fabric, block and branding, are absolutely on the right trajectory to create the best-in-class product at the price. And so, I feel very confident.

Matt Horwood: Thank you, Julian. A question here from Matthew, who asks, please, can you discuss creditor terms? And if pressure is increasing here, in terms of working capital movements in 2024?

Shaun Wills: No, is the answer to that. I think that I'm very mindful that any business that is managing liquidity tightly, needs to keep an eye on that. As it's one of the most important things to understand, how those dynamics are changing. Actually, I think we have a very peaky and choppy working capital cycle. And I think a lot of our partners and suppliers understand that. And so, we're able to sort of flex our terms to reflect that through the year, to help us through some of those peak periods. And suppliers have been incredibly supportive in helping us make that happen. And at the moment, that support is ongoing. So, there's no concerns on creditor terms at this stage.

Matt Horwood: Thank you, Shaun. A question here from Michael, who asks, how does Superdry remain on trend and remain relevant?

Julian Dunkerton: So I think, it's really important to make sure that we're fully, engaged in what's happening in the wider market. And also find the gaps that - become obvious in the market for product. So, we missed out on a couple of trends, and I've mentioned them already. So fleece in particular and Henley's, we were a bit behind on this year. We're fully engaged in filling all those gaps. I think the on-trend part is really interesting. So, how you communicate to your consumers in the right channel, let's take TikTok, for example, if you're communicating, the right product through the right channel, you will remain on trend. And I think that's really vital. And I think a more sophisticated approach, we're on a journey of getting better, but we can still get better. And I feel confident that we now understand, which consumers are where and how do, we communicate with them fully and what could the future hold for those channels and - that method of communication. So it's actually quite exciting, to be honest.

Matt Horwood: Thanks, Julian. We have a question from Wayne, who asks, with stock of 7 million units, isn't the supply chain size of distribution centers all too big? And are there further significant savings to be had? Also, why not outsource fulfillment, to really capture major savings, he asks?

Shaun Wills: Well, we have outsourced our fulfillment. It's run by third-parties. So that's already done. But I think the answer to your question is absolutely yes. And when I talked earlier about the sort of low hanging fruit versus the more structural changes, that's a good example of them. So clearly, we can do things to improve our own efficiency in the short-term, which is what we're delivering in this financial year. And then the outcomes of that might mean we need a slightly different setup for some of our structural operations within the business. And we might need a little less space in a couple of those warehouses. And those are the things that unfortunately come with sort of contractual obligations. We have to wait, to find a point where we can get out of those. So those conversations will happen going through next year. But there should be savings from the impact of this change in how much stock we're moving around the business, to be felt through the entire organization next year.

Matt Horwood: Thanks, Shaun. We got a question for Julian next from David, who asked around the impact of the recent Red Sea attacks and the resulting rerouting of goods?

Julian Dunkerton: We always have a bit of a buffer in our delivery schedules. And so, the impact to us is not huge. It's about 7 to 10 days on about 70% of our goods. So it's not huge. And we're just extending our fail period for a bit longer to cover that impact. And so, it won't be significant for us.

Matt Horwood: Thanks, Julian. A question from Paul, who asks around the PwC news that has impacted the share price. And just a little bit more color around that?

Shaun Wills: Sorry, PwC as we seen it. And we realized, there was a leak in the market that happened earlier this month. And then, the information that was put out was inaccurate. Yes, we are working with PwC on various projects, as we quite often do. But we're not discussing those today. So, we're not going to address those.

Matt Horwood: Next question comes from Matthew M, who asks whether we could outline how much, if any, of the stock reduction relates to reducing in-store stock intensity?

Julian Dunkerton: So, there's a few sort of elements here. So, we are targeting stockless stockrooms, which - so the total amount of stock in-stores will be reduced. That isn't an option count reduction, though, within stores. So the same a mid-sized store, is going to have a similar number of options as it did last year. But we're not filling the stockrooms and as we used to do. We're having a more sophisticated approach to stock deliveries.

Matt Horwood: Thank you, Julian. A question from Jai Shaleen, who asks whether there's any plans to delist and take it private?

Shaun Wills: I would never comment on something like that.

Matt Horwood: That's all we have at the moment. Mark, do we want to give it another minute and that's all the questions we had from here?

Operator: Yes, absolutely, Matt. Thank you very much indeed. And thank you to everyone for your engagement. So Matt, if you just keep an eye on that Q&A tab, I guess if in the next 30 seconds or so we don't have any further questions, then maybe if I may just ask Julian for a few closing comments, after which I'll redirect investors to provide you with their feedback, which I know is particularly important for the company.

Matt Horwood: Yes, there's no more questions that have come through at the moment, Mark.

Operator: Perfect. Thank you very much. Thank you very much indeed. Julian, if I may just ask you just for a few closing comments, sorry to repeat myself, and then obviously I'll redirect investors to give you their feedback.

Julian Dunkerton: Yes, so while this has been a tumultuous year, and let's face it, it has been. You have to really think about the core aspects of this business. We're a very large business that, needs to address its cost base, which we are, I would say, halfway through addressing. We will get there. We will right size the cost base, to our turnover. The product is getting better, and the model will be simplified. So, I think in all aspects we are improving. It's just that painful middle phase of that turnaround that we're in. So, I'm a great believer in - we got to say things aren't right - in the right way for the future, and I believe we're doing that. So as I said earlier, I'm confident about the future and we'll deliver.

Operator: That's great. Julian, Shaun, Matt, thank you once again for updating investors this morning. Ladies and gentlemen, please I ask you not to close the session as we'll now automatically redirect you for the opportunity, to provide your feedback in order that the company can better understand your views and expectations. This may take a few moments to complete, but I'm sure be greatly valued by the company. On behalf of the management team at Superdry plc, we'd like to thank you for attending today's presentation, and good morning to you all.