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Edited Transcript of SGP.L earnings conference call or presentation 12-Dec-19 9:30am GMT

Half Year 2020 Superdry PLC Earnings Presentation

London Jan 7, 2020 (Thomson StreetEvents) -- Edited Transcript of Superdry PLC earnings conference call or presentation Thursday, December 12, 2019 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jonathan Wragg

Superdry Plc - Global Trading Director

* Julian Dunkerton

Superdry Plc - Co-Founder, CEO & Director

* Nicholas John Gresham

Superdry Plc - CFO & Director

* Phil Dickinson

Superdry Plc - Creative Director

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Conference Call Participants

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* Adam Stuart Tomlinson

Liberum Capital Limited, Research Division - Analyst

* Caroline Rachel Gulliver

Jefferies LLC, Research Division - Equity Analyst

* John Stevenson

Peel Hunt LLP, Research Division - Analyst

* Kate Calvert

Investec Bank plc, Research Division - Retail Analyst

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Presentation

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Julian Dunkerton, Superdry Plc - Co-Founder, CEO & Director [1]

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Welcome, everybody. I'm delighted to see you all here, and thank you for coming. And I know Dickinson's probably still got a couple of people. But look, I'm not going to talk you through everything that comes up on the screen because I think you can read, and me reading it to you is probably not what you want, but I'll just try and talk through everything that we're doing, all the positive actions that we've taken this first 6 months and everything exciting that's happening this year.

So obviously, we are taking decisive action, and we're making huge progress in addressing legacy issues. So you're all aware from a store estate perspective, from an exec team perspective, really putting this company back into the right place in terms of product and every single channel that we move through. So we really feel very, very positive about where we're going and what we're doing. Right. This is where I get much more excited. So this is -- so I'll probably talk quite a lot about everything here. So we told you all sorts of things that we were going to do and what we've achieved. So what did we say? Well, we said we'll bring in 400 new options in-store and online, and it says Design Lab, but some are Design Lab and some are Phil and I. Basically, they are options that have been put in, in the last few months. Fantastic results from particularly the jackets range, which is really exciting. So where are we there? And this was about proving the difference of a particular style of product and a particular kind of product for us to show the scale of the opportunity for next year. And when we take the jacket range and extrapolate where we could have -- if we'd have expanded all our jackets that we injected this season through the entire store estate, that would be a GBP 16 million extra revenue for -- sorry, GBP 12 million extra revenue for next year. So it's made a huge impact. Some of them have come in and had massive rates of sales, some have sold out, but really very exciting.

Store options, 25% across the estate since the start of FY '20. Now I'm going to give you some numbers here that are really very exciting because they show the scale of the opportunity going forward. So you've obviously all heard about me talking about the quarterly drops as opposed to the 6-monthly drops or seasons. What that actually meant was a store option count, rather being consistent as it always historically was, would be going up and down like this throughout the year. When we take a 20,000 square-foot store, the difference between September '19, as in the September that's just gone, and the September that's coming with Phil's new range is moving from 1,578 options to 4,000. It is a staggering, staggering difference. A 6,000 square-foot store is 1,534 options -- no, sorry, 980 options to 1,600. A 1,500 square-foot store is 364 options to 600. It's a staggering change.

Now we're making that incrementally. So you will see progress through March and then through to September. But for the first time in years, we will be actually delivering the full autumn range to land by September 1. So we will have a consistent product all the way through the autumn season, which is exactly where we should be if we don't want to create wastage and we want to maximize our opportunity in store.

E-commerce options, 8,000 legacy options online. So you remember me talking to you about discovering product that were sat in warehouses, lurking around the world. So what did we do? We promised you that Black Friday would be protecting our full-price store estate while clearing our legacy product. Well, that's exactly what we did. We actually delivered the biggest ever online day on Black Friday. We cleared 600,000 legacy products through the Black Friday period. And we protected our essentially jackets offering through the full-price estate and for this period now. So it's a win, win, win situation. And that actually has really helped us deliver a massive decrease in our stock holding year-on-year, which I think we could say is about 13% down in terms of a year ago and where we are now. So huge progress.

Right. One of the big things for me is e-commerce fulfillment from store. Now another one I've kind of -- you've all heard me talk about, and probably one of my little obsessions. I've been trying to work on this. Before I left, I was trying to work on it. But we've delivered it in 20 stores. What actually has happened is, we've had 5% of our holders have been taken from that stock in stores. Now this is incremental sales for us. Bearing in mind, it's 20 stores out of an estate of 250 or wherever we're at, which -- most of which will be on track for -- by the end of this financial year. So the like-for-like implications for that are really quite enormous, also in protecting our full-price stance and not having to go on sale. So if you imagine, you're dropping in 1,000 units of a product at the beginning of the season, you put 500 into stores and 500 online or from an online warehouse. The 500 online sell out instantly because it's a really popular item. Then what happens? Well, historically, they've been trapped in stores that may or may not sell them while not using that e-com traffic. Now we're exercising that. So I believe, I believe, we're one of the first in the U.K., if not the first in the U.K., I'm not sure. But I don't think there's many doing what we're now doing, and the opportunity is huge.

Okay. Phil and his team, what have they done? They've created an incredible range, which if you look around you and look next door, and we'll show you a video later of a catwalk that we've just done in Berlin. A really, really exciting opportunity. 40% increase in the range for autumn '20, which obviously underpins the 4,000 units that we're able to -- options that we're able to put in the larger stores. But also opens up a huge opportunity because we're finally able to divide up the range and actually have new sales channels while proliferating the Superdry brand. So I'm in a really exciting place. So if you take -- we talk about organic later on, but organic underwear, for instance, and say, right, okay, we now have an organic underwear range. What does that mean? That means we can actually tackle, in its own right, department stores across the globe. So we are moving to a place that Phil has allowed us to move into, which is really very exciting.

I talked about airfreighted stock, so part of our sustainability for hence saving money. Our kind of thought process is, look, guys, we can't be in this world shipping in by air such a huge amount of stock anymore. This is wrong, it's irrational, and dare I say, slightly immoral. So I committed to -- or we committed to reducing that. We are now below 50% of where we were a year ago. And by next year, we intend that to be pretty much 0.

Store rental review. Okay. So we've been tasked with getting out there and reducing our rents. We're massively on that now. The first indications are 30% circa, some are slightly more. I think that will be an average, and we are looking at the entire estate currently, and going to our landlords as we speak. So very exciting opportunity.

We've closed 2 warehouses as a result of our reduction in stockholding. So actually, did we need these warehouses? No, so they're gone. We've got another one shutting by July, and I believe another one in Europe probably within the next 2 years. Is that right, 2 years? Something of that order.

And then new team recruitment. So here we are, Phil, Jon, Nick, the 3 people that are here, the whole team that we've built up, that we're proud of, we're working incredibly positively. The guys are here to answer your questions on very specific -- their specific channels. But we changed. I mean we have changed from probably quite a difficult negative head office situation to now a very enthused, excited. The whole team is excited. We can feel palpably that sort of energy that's coming through because of the product and because of the innovation that's happening. And we feel in a really great place. And then the one that's probably not on there is the rest of the sort of organic thought process and sustainability.

So a simple thing. 30 million plastic bottles are going into -- are being recycled into our jackets. We haven't started talking about that. Phil and I are working on a vegan trainer range at the moment. I'm sure you've all heard of Veja and how successful they've been. And you'll know people, some of you are probably wearing them. But you will certainly know how successful they are. The reality is it's very hard for the huge corporations to really change their product in a way that we can. So if we decide to move into organic underwear, we can. If we decide to move into vegan trainers, we can. We have that capability. So we're in a really great place. And I don't really feel that there's any competition for the sort of product areas and the quality at the price that we're able to deliver. So as I sit here, I feel very happy and very confident in the future.

We've talked about Black Friday and what it's meant. I think I've probably said enough. But biggest online trading day ever, 0.5 million packages dispatched. Cost per unit, 20% lower than last year. So I'll just pull that out as a great result from the planning from the e-com team. So we're really moving forward.

Nick? The exciting part.

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Nicholas John Gresham, Superdry Plc - CFO & Director [2]

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Okay. So I'll try and go through the numbers and all the moving parts as quickly and intelligibly as possible and then hand back to Julian for more detail on the strategic review. So from this page, we can see total revenue decline of 11%, in line with our pre-close statement and reflecting the expected year reset as we address a number of the legacy issues already mentioned across the business and including that move to a full-price promotional stance.

Following internal accounting review, we've booked a number of one-off adjustments in the period, which adversely impacted underlying profit [before] tax by GBP 10 million. These one-off charges include GBP 3.1 million relating to accounting estimates for inventory. This does not impact quality of future -- quality or future salability of our closing stock balance. And we've also booked GBP 6.9 million in relation to debt recoverability from specific large foreign accounts and receivables from our China JV.

Before these one-off adjustments, we were in line with trading expectations, and along with the Board's confidence in the long-term prospects of the recovery of the business, we announced today an interim dividend of 2p per share.

Net debt at the period end of GBP 9.3 million includes drawings on our banking facility of GBP 30 million, having benefited from tight control of stock, which, as Julian mentioned, has been reduced by almost GBP 30 million, GBP 28.9 million year-on-year. And we've also caught up with our outstanding supplier payments of GBP 21.4 million, reflecting the policy to pay all approved invoices on time. This period also includes the first-time adoption of IFRS 16, and that has reduced profits by GBP 2.5 million, as shown on the chart. And exceptional costs of GBP 1.9 million include foreign exchange mark-to-market movements as well as strategic change costs.

In revenue, so performance was broadly in line with expectations and in line with the pre-close statement from a month ago, with both our own stores and e-commerce channels improving performance in quarter 2 versus quarter 1 after benefits of store density and option count initiatives in stores and the legacy option availability and site improvements in e-commerce.

Again, as previously mentioned, Wholesale Q2 performance has been negatively impacted by the delay in deliveries of forward order product versus last year as we aligned more to Wholesale customer needs than our reporting calendar.

In gross margin, whilst total gross margin of 56.3% on a reported basis is adverse to last year by 10 basis points, the underlying positive movement of mix and rate is a substantial increase of 250 basis points, primarily driven by our full-price participation from retail channels.

Previously mentioned one-off stock accounting adjustments dilute margin by 80 basis points. And the FX headwinds of 180 basis points are as a result of historic movements in the U.S. dollar.

In total costs, the total cost base before the benefits of onerous lease impairment -- onerous lease provision and impairment of GBP 228.1 million that you can see on the chart, was GBP 4.1 million above last year. This includes a total bad debt charge of GBP 9.3 million, which includes itself the GBP 6.9 million previously mentioned one-off increase in debt irrecoverability.

Pleasingly, we've started to see benefits in cost efficiency in head office, and this should continue through the second half and accelerate into next year. And FX movements year-on-year is a result of a 0 charge in this period versus a GBP 4.9 million charge last year.

So reported underlying profit of GBP 0.2 million includes the benefit of GBP 15.9 million of impairment and onerous lease provision release, which you can see on the chart from the right-hand side. Excluding these losses, we're GBP 15.7 million, which include the GBP 10 million one-offs that I've referred to a number of times.

In this period, we have adopted IFRS 16 for the first time. And from a balance sheet perspective, you can see this includes an increase in assets of GBP 256 million, just under, offset by an increase in liabilities of GBP 257 million, just under, resulting in a net asset adjustment of just GBP 1 million.

From a P&L perspective, this reduces rental charge and increases depreciation and interest. The net impact of those is a drag of GBP 2.5 million in this period, and we expect that to be a circa GBP 4 million drag for the full year.

The implementation of IFRS 16 also impacts the future years' benefit of the release of onerous lease provisions and impairments, which we've previously talked about, and an adjustment to those future releases are laid out in a schedule in the appendix on Page 31.

As previously mentioned, we've taken a tight control of inventories and the benefit of which is negated by a catch-up in the trade payables. So I think I've covered working capital.

In terms of cash flow, again, we've highlighted the net debt position of GBP 9.3 million at the end of the period, and that has moved by the end of November to a net cash position of GBP 12.3 million.

And then finally, just to touch in terms of guidance, we've updated some of the guidance that we talked about and released back in July with our prelims. In terms of profits, we're expecting the forecast estimates to be adjusted by those one-off charges that I've already talked about a number of times this morning of GBP 10 million. We are not adjusting any other aspects to the underlying trading performance for the business or for the second half of the year.

So now I'll hand back to Julian to run through the strategic update in more detail.

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Julian Dunkerton, Superdry Plc - Co-Founder, CEO & Director [3]

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I'm going to just quickly go through the exec. So obviously, myself, Nick and Phil have all committed to being permanent. Lucy, fantastic member. Shaun and Gordon have moved up. Guy's moved up, and Jon is here on e-com and Wholesale. So they'll all are here to -- Phil and Jon are here to answer your questions later. So we've also got a new Retail Director and a new General Counsel coming in the new year who've accepted. So we're delighted to be strengthening yet again.

I can't really express enough the positive aspect of the new internal design process, led by Phil, really. So this is really spreading throughout the whole company and is very exciting for us all. Jackets remain a key category for Superdry, representing 60% of sales. And I told you about the first one that landed went into the top 5 straight away in terms of rates of sale. I suppose the biggest thing here is the 4,450 options for September, which I'll repeat, against 2,850 last year. It's a huge, huge, huge move forward.

I think we've talked about organic. Well, I mean apart from -- we've spoken about organic, but we're accelerating from a 2040 target of 100% organic to 2030. So we're already 10%, which is allowing us to go into these areas and deliver, like I said, organic underwear in a way that will deliver us a new opportunity. You got to remember -- well, you probably all know that I come from an organic background. So these sustainable aspects that are embedded in this company are truly embedded in this company. I would say for most companies, this is a tick-box exercise that they feel they have to do. It's very different for us. We really feel this is part of our inherent journey going forward. So we're proud and also determined to be -- I think we possibly are going to be the largest company that will be 100% organic cotton. So it's quite a feat that we're achieving.

Now there's -- we've just come back from Berlin. Here's a very exciting video just showing the catwalk that we had and our international partners. So please watch.

(presentation)

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Julian Dunkerton, Superdry Plc - Co-Founder, CEO & Director [4]

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So I think there's a few standout things here. First, this time last year, that was in Zizzi's in Cheltenham. We're now -- now we're in Berlin in like 200,000 square feet or whatever it was. It just shows that the ambition is slightly different. This time last year, I don't think they'd talked about product in this presentation at all. We're surrounding you by product and really bringing product to the forefront of where we're at. To be -- to have the Italians telling you your product is amazing is probably the biggest accolade you could have because if you want to impress anybody, impress them because they know about clothes. And then when you take into account the video at the end and the imagery that's portrayed there, the whole thing, that sort of marketing department has sort of lifted itself into this whole new brand-enhancing place. It takes us into a really exciting arena. So I'm sure you'll acknowledge that this is huge progress compared to a year ago. And then, look, the international partners are delighted. And we could have gone on, I believe, with more and more of those sorts of interviews if we would've wanted to.

Okay. I'm not going to go because this is really Phil's department. But this is how we're now constructing our design thought processes. We're dividing the consumers into groups and style choices. Now what those style choices do? And you'll be able to see a snapshot outside, the sort of Cult Studios, the STX. What that does is deliver you the ability to talk to different consumers in a new way and bring in new people to the Superdry brand. So that is the place that we are now moving to, which is really exciting.

Okay, stores. So the first round of fixture density is now complete across the entire estate. There's still more to come. Store stock is now up 3%. That's actual physical units. So last year, they reduced it by 14%. And so really, it's about the option position summary that you kind of -- you will feel the progress. And going into sort of March this year, you'll really feel that this is massive, massive progress.

Full-price sales in full-price stores, 70% versus 52%. So we are getting rid of that discounting mentality through the business, which is really important, which, of course, is going to affect our sales line, but it's about refreshing the brand. And very interestingly, the WGSN, they run a kind of a, what is it? A consumer barometer, and we've moved into a positive place. So that's a wonderful thing.

Fulfill from stores, we talked about how excited am I. And rent negotiations, we've talked about.

E-commerce. Well, obviously, Jon is here to answer all your very specific questions. What's exciting? Well, look at everything that we're adding to the -- what we just delivered pre-peak. Fit Analytics is -- no, sorry, ZigZag is an interesting one because it looks like it's going to reduce our returns. So that's really quite significant. Now it's too early to probably quantify that, I suspect, but anecdotally, it feels like that is happening.

And again, full price -- oh, limited edition. So limited edition is something very important to us going forward. We've got a lot of limited-edition jackets still to drop before Christmas or around Christmas. So we are getting much more customer interaction, e-mail interaction, opening rates by dropping those sort of positive messages. So really, this is about enhancing the brand.

Okay. Again, Jon's here. But what have we done? Well, the full price stance in our Retail business actually has a knock-on effect to our Wholesale business. So there we were in Berlin, and the U.K. sales team rush over and say, "Oh, as a result of us not going on sale in our stores, a U.K. wholesale customer just spent GBP 800,000 this Monday that they wouldn't spend a year ago because of -- a year ago, we were in sale." So there's an immediate symbiotic sensible effect. You've got to look at the product as -- we're all working together, we're all part of one business. So if you think you're making or doing something clever over there, you're bound to be affecting something over there. And actually, this is a really positive effect from holding our full-price stance. And I think that will accelerate.

So we've exited a couple of department stores in the U.S. where the contracts were really about sales and not about making money. Is that something that we're interested in? No. We are about making money in a sensible way. So we've come out of those.

Timely impact of Autumn/Winter '19. So obviously, end of Q2 a year ago, orders were pushed out maybe when the customers really didn't want them or need them. We're much more aligned now to the consumer or the wholesale needs. So you will see a Q3 positive impact from that, from the holding back in Q2.

We've got 60 franchise openings this year, 13 of which have been delivered. And actually, tactical Black Friday planning has again helped us to reduce our stockholding. So positives all around.

Brand and marketing. So obviously, social is now in the forefront of our minds. We have been historically weak in this territory. We are building. You will see more of a build, you will see more posts, you will see more excitement. You saw with the video where -- how we're now tying up really proper campaigns with the e-com strategy and all working together to deliver something that's brand-enhancing and positive, but actually turning it into money as well. So it's having a positive effect on e-com sales already.

USA. Okay. So the U.S. is an owned retail strategy. We are at this very moment talking to landlords in America about resetting our store base over there, taking advantage of the their needs for us, which is quite exciting. So obviously, we will be CapEx-paid, turnover-only deals. That's my forte. That's what we need for those territories, and has huge potential. We're already putting our prices up gently. So I don't know if you remember, but 3 years ago, we had a massive price reduction in the U.S. Well, we're not going to go through a massive price hike, but we're incrementally putting prices up. So I think I can pretty much say that year-on-year, we're about 5 percentage points ahead in terms of gross margin. So really exciting, and there's a lot more to come. That's a process that will continue. Obviously spoken about the warehouses closing. So that's great.

China. So we are obviously mindful, we've got to get this right. We are introducing local manufacturing in terms of our graphics-based products. So we will be reducing our lead time from 10 months to 2 months. And that has started, that process has begun. The first orders have gone in. We're working with a partner that we've been with for quite a number of years, he's one of our biggest suppliers, and they're really helping us get on the path of short-order product. Obviously, we've been reducing costs, reducing -- bringing in logistics savings. 2 stores closed, 5 reduced in size. It looks like the optimum size is probably about 1,500 square feet. And obviously, the excitement there is to get a franchise model that makes sense. So this is -- this will be a franchise delivery. That is the opportunity that exists in China.

Okay. So I mean where are we? Well, we are -- we have reset the business. We are pointed in the right direction. The product has moved on massively. We, as a team, are very positive. We feel like we're all working brilliantly together. We've got clear -- by channel, we have clear decisions about where and how we're going to improve this business, and we're on that path. So this year, this next 12 months is really exciting. And I am particularly, obviously, excited by the autumn because that is really when you can say we've had the most impact on the product working together. And we're incredibly excited.

So yes, I mean, I don't think there's anything particularly I need to pull out any more than that really, very positive.

And I presume we're going to Q&A. So -- and don't forget, we got these 2 guys here as well. So very specific questions can be detailed to them.

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Questions and Answers

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Unidentified Analyst, [1]

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First one is kind of jacket sales year-on-year and if weather has been more supportive. That was kind of flagged as a big thing last year. So then if you can just kind of call out anything around that, kind of how important do you think that's been?

Second one, kind of what can you give us tangentially, be it kind of qualitative, quantitative, around how some of the Autumn/Winter '20 product is being received? And I don't know whether that is comments from wholesalers, any kind of early orders coming in from wholesalers. You mentioned that WGSN data. I presume that's more related to the current product. And can you just clarify that comment? Was that it's been trending negative, and it's for the first time inflected and now it's trending positive? If you could just clarify that? And if that's any specific country as well?

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Nicholas John Gresham, Superdry Plc - CFO & Director [2]

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The last one first on the WGSN is a measure of the proportion of people that are talking positively about the brand. And that measure is up year-on-year. It was positive last year by a small percentage point. It has significantly grown over the winter months that we've been measuring it, which is the last couple of months.

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Julian Dunkerton, Superdry Plc - Co-Founder, CEO & Director [3]

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So in terms of jackets, we've got a huge opportunity. I actually got some stats on -- so I said that -- the numbers slightly wrong. But the GBP 12 million worth of opportunity for next year based on just the injection products that we put in, there's a GBP 6 million opportunity on our best-selling product, which is called the olive bomber, which has been a fantastic success. Now they're in and they're out, they're in and they're out, and we haven't got enough. We're going to -- it's going incredibly well. So turning this company from a quarterly thought process to a 6-monthly process is going to be huge for next autumn. I mean the win is enormous. So yes, jackets are a huge success, particularly the ones that we've added and the historic ones that were sort of core, but it's still a huge opportunity. But it actually has, I believe -- I haven't got the exact numbers in my head, but moved the female dial quite considerably forward. Have you got any number? No, okay.

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Unidentified Analyst, [4]

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And Autumn/Winter '20 product commentary?

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Julian Dunkerton, Superdry Plc - Co-Founder, CEO & Director [5]

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Well, I mean, all we can talk -- this was the first time that the internationals have seen the Autumn/Winter product. So that will go on sale over the next 2 months -- 2 to 3 months.

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Jonathan Wragg, Superdry Plc - Global Trading Director [6]

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Coming between January, February. I think the feedback was genuinely really good. And I think one of the points was you kind of hear that the range has gone from 2,500 options to 4,500. You think, gosh, that must be overwhelming, but it's not because of the way Phil and his team has segmented the range. So it enables the sales team to go about it much more thoughtfully now and say, "look, this sophisticated minimalist. That's absolutely right for that customer. I'm going to sell that into that customer. This casual and vintage is right for this customer. I'm going to sell that in there." So actually, a customer will end up seeing a smaller edit of the range perhaps than before, but it will be absolutely right for their business. So we're very positive about it. We've got a lag, of course, so we sell in January and February. We start delivering from around about August next year. But we're very positive based on the reception that the range has had. You saw it in the video, that was completely authentic, those (inaudible) and they could have gone on for ages.

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Phil Dickinson, Superdry Plc - Creative Director [7]

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I was at the closing event of the Berlin sales meeting yesterday. And what -- we tasked all the individual teams to do like their own Instagram feed of what they've seen and what they've liked. So it was almost like, how does this product look on a feed, and it looks absolutely immaculate. And it was quite emotional for a lot of the people who've been in the business, wholesaling the products across Europe, across the Asia, across the USA. They were feeling like they were set up for success. And the clarity of message we've created by having, as Julian had on the previous slide, 1 brand. We have 4,000 options, but 4 style choices. When you imagine a style choice and you play it out through the potential of known consumers, you can get, as Jon just said, very specific with what you're going to show to who. So we don't compromise our brand in any of the channels we intend to go into. It also means that our brand can have great coverage in a single geographic location, for instance, in London. I presume a lot of you guys live in London. Different parts of town have got different vibes going on. It means that we can show up in those sort of like micro territories and still have a really strong brand profile that doesn't compromise our image. And so I think the way we've actually gone about strategically structuring the collection allows us to get after more options, but all the options make sense.

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Nicholas John Gresham, Superdry Plc - CFO & Director [8]

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Yes. More questions?

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Caroline Rachel Gulliver, Jefferies LLC, Research Division - Equity Analyst [9]

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It's Caroline Gulliver from Jefferies. I had a very similar question. But just I wanted to follow up because it all sounds very encouraging. Of the 9 different customer segments, are there any that massively stand out as being like you're really, really optimistic about?

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Phil Dickinson, Superdry Plc - Creative Director [10]

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So for each of the style choices, the brand business management team -- which is a newly created function that was previously category management. So previously, they've been looking after a category like hoodies. For me, that's an interesting job for life, but not necessarily one that's going to inspire consumer engagement. And so now they're looking after style choices. Now within those guys who make up that team, they're now looking at our consumer opportunity across the 9 potential consumers that make up our total market potential and saying, where are we tracking at the moment? And by acknowledging where we're tracking at the moment, we can also see where the potential is to grow the business. And so we're not trying to swamp the market and cover up 9 of those boxes in one fell swoop, but we are strategically applying our resources to make sure we get after the next box on that grid that we want to go after. So for instance, in casual and vintage at the moment, we're tracking with people who are a little bit younger than me, but they're still over 35, who have a similar sort of vibe to me, which would be confident mainstream. So we've got a great engagement with consumers there, but we know that if we move that conversation on a lower base and add a fashion follower in the age group, it is 15% of the potential market. So rather than us going, let's go after the full 100% of the market in one fell swoop, we know that we can increase the business very, very strategically, very mindfully and make sure that we understand why we're doing everything we're doing. Rather than just saying, let's have a go at it all, which won't make sense to anybody, we can actually start to build our collections against that and check where we're tracking with it. So it's a lot more fun doing that, right?

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Caroline Rachel Gulliver, Jefferies LLC, Research Division - Equity Analyst [11]

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I'll give you a break. A couple of questions for Nick, please. The 50% reduction in air freight, how much is that saved, roughly?

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Nicholas John Gresham, Superdry Plc - CFO & Director [12]

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In the first half or for the full year?

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Caroline Rachel Gulliver, Jefferies LLC, Research Division - Equity Analyst [13]

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Either.

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Nicholas John Gresham, Superdry Plc - CFO & Director [14]

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It is a couple of million pounds in the first half.

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Caroline Rachel Gulliver, Jefferies LLC, Research Division - Equity Analyst [15]

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And could you just remind us the Wholesale timing, the impact on sales in second quarter and then into third quarter, could you quantify that for us?

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Nicholas John Gresham, Superdry Plc - CFO & Director [16]

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We said, of the 15% we were down in Q2, we said about 5 percentage points of that was in relation to the timing.

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Caroline Rachel Gulliver, Jefferies LLC, Research Division - Equity Analyst [17]

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And then just on the e-commerce fulfill from store, how is that changing your ordering pattern, if you like? So you -- obviously, you mentioned that the 5% is incremental sales for stores. Are you now effectively ordering more to store or…

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Julian Dunkerton, Superdry Plc - Co-Founder, CEO & Director [18]

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So this is effectively -- it affects your full-price sell through. So we're not going to suddenly layer on another wave of inventory. This is about managing your stock in a way that actually gets you the best price for that product, which is really exciting.

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Adam Stuart Tomlinson, Liberum Capital Limited, Research Division - Analyst [19]

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Adam Tomlinson from Liberum. A few more numbers-focused questions, if that's okay, please. The first question is just on the GBP 10 million charge, unexpected in H1. Just to understand, is there anything else we should expect there? Just your confidence around that number being, I guess, what we should expect for the full year as well. And a small part of that, I know, but just the stock, GBP 3 million or so adjustment there, just any further detail you can give around that?

The second question was just on net debt as well so -- or the net cash position, I think, for the full year. You're comfortable around the slight improvement there. So just the building blocks to get back to that full year position versus the net debt at H1?

And then finally, just guidance around international. So I think the U.S. and China losses together were about GBP 16 million last year. So anything you can give in terms of what that number might look like for this full year?

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Nicholas John Gresham, Superdry Plc - CFO & Director [20]

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Yes, I'll try and break all of that down. So yes, the GBP 10 million is a one-off. We've been through a thorough exercise of balance sheet review and in terms of risks across the business. We think that, that is quite a thorough and, to some extent, quite a prudent view of both stock and debt irrecoverability. So we are certainly not expecting or hoping for any additional charges coming through in the second half. Indeed, if the business plays out in a more positive way, it's more likely that there will be release of that than additional charges. But I can, unfortunately, never say never. The stock number itself, again just to be clear, it's not a quality or a quantity adjustment to the stock number. We firmly believe in the salability of the stock, and we're not increasing it from a provision perspective. This is purely an accounting adjustment where historic variances to the profit account have been phased into the P&L over a long period of time. We have taken a reassessment of that and brought that significantly shorter, such that it brings forward what would have been a charge to the P&L anyway, more into the first half of this year.

In terms of net debt/the cash position. So as I said, from the half year end of October, which was a debt position, we've already flipped into a GBP 12 million net cash position at the end of November. As of this morning, that was GBP 31 million number and that will continue to increase. So we are confident that we'll achieve an increase on the year of -- of the year-on-year cash position, and a lot of that driven by the continued impact of the positive stock movement.

In terms of international, quickly on that. So the movement on international is included obviously within the totality of the P&L and guidance previously given. We are seeing a benefit to that on a year-on-year basis. China slightly differently because we've fully written that off historically. China, we won't see any losses in the P&L. But the underlying performance of that will be improving with the actions we've taken and Julian outlined on the page.

And in the U.S.A., again specific actions around Wholesale account losses and logistics costs, in particular, we'll be bringing down that number by the full year.

There's somebody with a mic.

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John Stevenson, Peel Hunt LLP, Research Division - Analyst [21]

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John Stevenson of Peel Hunt. A couple of questions as well, please. Just starting off on Wholesale. I don't know -- I appreciate, obviously, you changed the timing, but in terms of sort of in-season interest, can you comment on maybe what you've seen from the partners and maybe in terms of B2B, if that's in operation?

Second question is, what's going to happen in stores in January? Are you going to do any clearance? Or is it going to be very much full price and sort of ignore what's going on in the High Street and clear elsewhere?

And then on the video, there's a lot of -- the word elevation came up a lot. Very interested to see what -- is that the way you sort of put the product out there? Or actually -- are you actually bringing a different look and feel to the product, whether it's material, whether it's look? If you can maybe talk about whether -- what they mean in terms of the overall elevation? And can you just talk a little about when we get to autumn into next year, will we see a shift in terms of the mix between categories? Will the personalities sort of influence in terms of the overall mix of the different product types?

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Nicholas John Gresham, Superdry Plc - CFO & Director [22]

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Which one would you like first?

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Jonathan Wragg, Superdry Plc - Global Trading Director [23]

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Wholesale.

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Nicholas John Gresham, Superdry Plc - CFO & Director [24]

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Wholesale.

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Jonathan Wragg, Superdry Plc - Global Trading Director [25]

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So on the Wholesale, the question was specifically about in-season orders?

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John Stevenson, Peel Hunt LLP, Research Division - Analyst [26]

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Yes.

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Jonathan Wragg, Superdry Plc - Global Trading Director [27]

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Yes. So actually, the -- in the appendix to the slides, it does say that, that has been disappointing. That isn't actually the case. So we have had a very good year-to-date in-season order position, very strong double-digit growth. We're very pleased with that. And that comes despite, as Julian sort of alluded to earlier, we've actually sold out some of our best-selling jackets. And had they been there, we would have taken even more. Some of the other products that we consider to be core has sold very well and sold out as well. So that's all -- that has 2 benefits for us. One, it's untapped potential for next year. But secondly, it will encourage people to order more forward when they're buying for autumn '20 next year, knowing that they've tried to buy in season this year and they've been unable to get the best sellers. And that's really important because there are 2 things really that will drive the forward orders. One, do they love the collection? Tick, they do. But two, how are they performing this season? Is the brand selling through okay? And that will help them set a better budget for us. And we're performing pretty well on those things. But Wholesale is bit of an oil tanker in that sense. You've got great forward visibility of sales. But because what we are selling in January this year, they will then sell in Autumn/Winter next year, and then based on the response of that, buy for autumn '21. It takes a long time for Wholesale to go wrong and it takes a long time to recover as well. But I do believe we're firmly on the right course. Does that answer that?

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John Stevenson, Peel Hunt LLP, Research Division - Analyst [28]

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Yes.

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Julian Dunkerton, Superdry Plc - Co-Founder, CEO & Director [29]

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Can I do the stores?

Store stocks. So it's very much like Black Friday, I think, is the thought process. So we will be holding our key continuity lines at full price. And we will obviously have some in-season sale activity. But we will probably be bringing some legacy stock into the physical estate as well. So while we will not be discounting everything, we will be compensating by pushing out some legacy stock into the stores. So really, it's about stock management in a correct way again, rather than the sort of blanket thought process.

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Jonathan Wragg, Superdry Plc - Global Trading Director [30]

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So just one point to add on the sale. We are starting the sale -- unless there is a legislation in the country that determines when we should run it, we're starting it on Boxing Day this year in every territory. Whereas last year, for instance, today, last year, we launched it in the U.S. So we are trading prime much more up to the end and then we'll go with a really strong sale. But we expect the response to be good because we've starved customers of discount, and we think we'll get a good response from it. Phil, do you want?

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Nicholas John Gresham, Superdry Plc - CFO & Director [31]

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Innovation and category mix.

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John Stevenson, Peel Hunt LLP, Research Division - Analyst [32]

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Yes. The comments on elevation.

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Phil Dickinson, Superdry Plc - Creative Director [33]

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How did you describe the imagery so in the videos?

So was it weird, is that what you said?

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John Stevenson, Peel Hunt LLP, Research Division - Analyst [34]

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(inaudible) The sort of comments at the end, a lot of people talked about how it was elevated. Was that from the view of the product itself or the way you're displaying it? Is it the way that you...

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Phil Dickinson, Superdry Plc - Creative Director [35]

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So it's both, actually. So when we break down the full collection into 4 legitimate style choices, those style choices, the casual and vintage, which is really the soul of the brand. The next one is sophisticated minimal, and we use that to, if you like, experiment with what the future process of fashion could be. So we know that sustainability is a massive agenda point for most consumers today. In order to manage that in a really responsible way, we've created a pinnacle expression for that, and within that, we're using things like -- it might seem a little wacky in the context of the audience I've got here, but we're using like, for instance, yak instead of using cashmere. And there's lots of benefits to doing that. We're using recycled down in the down jackets there. The product's premium, so our down jacket in the sophisticated minimal would be GBP 400. It's a really beautiful jacket, recycled down. It allows us to safely experiment and innovate in a capsule collection. The cool thing about that is that the same people who created those pinnacle expressions also designed the mainline style choice of that particular consumer choice. We have -- so we have casual and vintage, sophisticated minimal. We have Energy, which I think is what the brand once had a lot of and, obviously, I want it back because we want to engage the next generation of consumers. And again, for the audience in the room and people like myself, it always looks a little bit disturbing when you see the Energy product. But the fact we had Hypebeast there, who, if you like, are the most trusted editor on the planet regarding that particular style choice, saying positive things about our brand. We've also had the style editor of GQ, U.K., who I've worked with in the past, wants to get on board and do some collaborations with us around our Energy collections. Another publication that I used to do the creative direction and editorial for, SoccerBible, which is the clash between football and culture, engaging lots of young football players, they want to do features on what we're up to. So we know we're getting traction with the right audience with that Energy play, even if we don't fancy it for Christmas because it's not for our generation.

But -- and then we've got sport. And obviously, sport is something I know loads and loads about. But previously, we had a sport-style athleisure collection, which if you want to enter the sports game and get serious about it, you need to have a performance position. We've created that. Our lead designer in sport used to work for QuickSilver and has worked for few smaller [men's] brands. She then employed a new designer who's come from Rafa to join the team. So like I say, I've got plenty of skin in the sport game. We've now got a credible sport performance offer. The team was just over at the inter-sport trade fair in -- I forgot where it was, I think it was in Germany. But they just opened up a load of new accounts with our sport offer there. And what's great about those events is you're there competing with all the marquee established sports brands. Now I believe that the integrity in terms of products and the quality, if you get a chance to look at it, that we've built into our product, pound for pound, will take on the biggest brands in the world. But it also means because of our scale, our capabilities in manufacturing, we can also be looking around at some of the smaller brands and thinking, actually, is there market share, [real] market share. And I've done that in the past with a great big brand, and I think we can do it with this brand.

So we've got 4 great style choices that we're going to the market with. And I think they do elevate the brand. We're going to use them in the pinnacle expressions to innovate and elevate our brand, but the same teams who work on those pinnacle expressions that you saw, STX; Cult; DRY, the jacket I'm wearing here; and the Performance Sport, the same team has worked on the mainline collection as well. So the learnings they get by having the chance to make beautiful, small collections filters down into the mainline collection, elevating our quality and the integrity of the products. I mean the jacket I've got on at the moment is north of like GBP 600. It's 1 of 50 made by Golden Bear in San Francisco, one of the best manufacturers of leather jackets in world. You can have a feel of the sleeves later. But yes, it's -- for me, this is the -- and I've been doing this for a long time, this is the best place I've worked because we decide to do something, and we get after it, and we get after it properly. So I'm stoked be working on this project, it's brilliant.

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Julian Dunkerton, Superdry Plc - Co-Founder, CEO & Director [36]

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Can I just add to that? We're going to be doing London Fashion Week. A year ago, that would have been a risible thought process. Now you can feel, with the confidence we have in the brand, that we're prepared to put ourselves in that arena, which is a great place to be.

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Kate Calvert, Investec Bank plc, Research Division - Retail Analyst [37]

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Kate Calvert from Investec. Just financial ones, I'm afraid. The first one is on your bad debts write-off, the GBP 6.9 million. Can you tell me how that split between China and the core business?

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Nicholas John Gresham, Superdry Plc - CFO & Director [38]

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Yes, GBP 3 million of it is for China, and the balance is for the core business, predominantly in European accounts.

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Kate Calvert, Investec Bank plc, Research Division - Retail Analyst [39]

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Great. And the second question is, could you give a rough value on the loss-making U.S. contracts, the Wholesale ones which you've pulled out of?

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Nicholas John Gresham, Superdry Plc - CFO & Director [40]

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Around GBP 3 million.

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Kate Calvert, Investec Bank plc, Research Division - Retail Analyst [41]

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And the final question is, on the rent reductions you're getting from the first 6 stores, you talked about 30%. Have you had to extend the leases to get that sort of reduction?

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Nicholas John Gresham, Superdry Plc - CFO & Director [42]

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In a couple of them. One is -- the biggest rent reduction is actually in Belgium, Toison d'Or. That was a -- that's on a rolling basis. So a couple are on rolling and a couple are on extensions where we feel comfortable.

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Unidentified Analyst, [43]

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A lot of questions have been answered. So thank you very much. I'm just -- a couple of things. So it's obvious we get the full impact of the new products in terms of Retail next autumn, that's clear. I'm not a retail analyst. But the understanding of your answers on Wholesale is that it takes quite some time, maybe a whole another 12 months or so, to kind of start to get the full impact in Wholesale, just because people can't order today what they're going to need. So we might have a 20%, 30%, 40% impact in Wholesale, putting numbers in the air, but the full impact won't come for another 12 months?

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Jonathan Wragg, Superdry Plc - Global Trading Director [44]

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It will build. So in another 12 months, they'll be selling out of the product that they would have ordered that they're seeing now. And then based on the confidence that, that builds in them, they will build their orders.

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Unidentified Analyst, [45]

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Okay. Great and that's been really helpful. And then just -- I don't know what ZigZag is, so you can help me out with that. But a slightly more generic question. Just on the store estate in general. So obviously, you're renewing leases and I get that. But retail has moved on very quickly and not necessarily positively at the store level in the last few years. Is there a slightly more wider look at the store estate to say, "Look, what did we have and what should we have?" If you could talk about that? And maybe that's not for now, but...

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Julian Dunkerton, Superdry Plc - Co-Founder, CEO & Director [46]

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It's not about quantum, it's about individual deals. So it's about turning those stores into profitable stores immediately. So if we can see a very clear future -- we know exactly what we're doing in terms of options and where we've underperformed the market and what we can pull back, we believe, but the most important thing is to do it store by store. So we're incredibly brutal where we kind of go, okay, we don't mind when they're open or -- stays open or closes. We can be pretty brutal with the terms. But there is no, we're chopping out 1/3 of the estate or anything like that.

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Unidentified Analyst, [47]

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No, but I suppose that's what I'm thinking. As you go, is there more reflection on the size of the estate, where the locations of the estate are? Just in terms of you might have signed a deal 3 or 4 years ago, you might able to get a renewal of that deal that's very cheap and effective, might look good for profitability now, but is it the right place for you to be?

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Julian Dunkerton, Superdry Plc - Co-Founder, CEO & Director [48]

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If it makes sense for the brand. We take into consideration, just on a store-by-store basis, what makes sense. Look, I believe in retail. Don't get me wrong. I think, actually, the retail estate, what will happen is, we will have the rent reductions, that takes you into a strong profitable place. Retail is a leisure activity and very important for the brand. So if we look at, say, what we're doing with the fulfillment from e-com and that sort of co-working together, in like-for-like terms, that's a huge number from that stock. So there are all sorts of ways of playing this out. But the reality is, do you believe in physical retail? I actually do because I think this is a leisure activity. And a bit like probably Mr. Walton, he won't be chopping out many of his stores, we won't either.

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Nicholas John Gresham, Superdry Plc - CFO & Director [49]

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On ZigZag?

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Jonathan Wragg, Superdry Plc - Global Trading Director [50]

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On ZigZag, there are 2 things we're doing to reduce returns. One is we've introduced Fit Analytics. It's used by people like Tommy Hilfiger, ASOS, select your body shape and it makes sure you get a garment that's suited to you and less likely to return it. That's reducing the returns. ZigZag is largely about reducing the cost of returns. So we used to put expensive paperwork into tens of millions of parcels we send out every year. We're now putting no paperwork in at all. If a customer wants to return, they go on to our portal, they can then either print a label at home or take it to a parcel shop and have the parcel shop print the label for them, but they have to pre-declare the return to us in effect, and we can gather much better insight as to why they're returning it, and we can control where that return goes. Ultimately, we could use it -- instead of sending the return to our distribution center, we could use it to route the return to a store that's low on stock. So it's just having the stock that's fluid and can move anywhere seamlessly is one of the benefits it's going to give us.

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Nicholas John Gresham, Superdry Plc - CFO & Director [51]

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Pass the microphone backwards. Last question, I'm afraid.

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Unidentified Analyst, [52]

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Just coming back to the SKU count, the pathway that you've laid out through the Autumn/Winter next year. Just to correct -- just to check I'm right, you're talking about 4,000 SKUs in large, 1,600 in mid and then 600 in small stores, on average.

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Julian Dunkerton, Superdry Plc - Co-Founder, CEO & Director [53]

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That's 1,500, 6,000 and 20,000 square feet.

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Unidentified Analyst, [54]

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Yes. And so can you benchmark that against what the historic peaks were? I'm just wondering in terms of your operation. I mean, will that require you to reduce sizing options or will you have to have more frequent...

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Julian Dunkerton, Superdry Plc - Co-Founder, CEO & Director [55]

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Look, we -- what we've done is tracked the linear -- so it's basically -- it's one option per linear foot essentially, or 0.9 of a linear foot. And what's been happening is the options have been pulled out and the fixtures have been pulled out. So we've been repopulating the fixtures, working out what the linear square feet is and then working out what the exact number should be for a particular store size. So it's quite calculated. And historically, this will be a better position in terms of not having a repeat of a product through a large space. So this is a very key part of this. So if you go into Region Street now, even though the option count is better than it was 6 months ago, you're still finding repeat of product that shouldn't be there or too many of one color out on the display because that's what we have to do to fill the store. So in essence, that consumer journey gets much more exciting as we go forward.

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Unidentified Analyst, [56]

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And that's particularly true of the larger stores...

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Julian Dunkerton, Superdry Plc - Co-Founder, CEO & Director [57]

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Particularly true of the larger stores.

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Unidentified Analyst, [58]

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So what would the maximum SKU count have been historically? What would that have been at the peak, the SKUs at large stores?

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Julian Dunkerton, Superdry Plc - Co-Founder, CEO & Director [59]

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I think the most we've ever got to in full-price options is about 3,000.

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Unidentified Analyst, [60]

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And then the final question...

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Julian Dunkerton, Superdry Plc - Co-Founder, CEO & Director [61]

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I mean that's -- I think. I mean I'm plucking that from my memory.

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Unidentified Analyst, [62]

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Then the other question was just in relation to, you've exited loss-making accounts in Wholesale. In your statement, you've talked about opening up new low-margin accounts in online. I'm just wondering if you could elaborate a little bit more about that and the strategic purpose there.

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Jonathan Wragg, Superdry Plc - Global Trading Director [63]

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Yes. So the partner program. So like marketplace accounts in Wholesale are lower margin, but we don't have the same costs associated with them. So with a number of the biggest, we don't take any returns back, for instance. They stay with the retailer and then they resell them. Also, we may not necessarily be paying carriage on them. The retailer might be handling the carriage. So don't read low margin for low contribution on those accounts.

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Nicholas John Gresham, Superdry Plc - CFO & Director [64]

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Okay. Thank you very much. I think we need to move in to other things. So yes, thanks very much, everyone.

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Julian Dunkerton, Superdry Plc - Co-Founder, CEO & Director [65]

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Thanks, everyone.