Seraphine Group (LON: BUMP) shares are down 64% in London today as they’ve released a trading update. A polite way of describing that update is that it’s splattered with gore – not unlike a maternity experience in fact.
Seraphine calls itself a “digitally-led” maternity and nursing wear group. Translated this means that they sell maternity clothes online. True, they also point out that they make stylish such clothes, things that women would be willing to wear even if not pregnant. This could be a useful business to be in of course.
True, we’d want to consider such things as the declining fertility rate – something that affects the entire world – but that different way of doing things, selling online, could well overcome that point. There are still some women having children after all and selling to them digitally could provide more market share at a greater rate than the decline in the activity itself.
But once past that we need to get into the details of how the business is being run. The trading statement is full of interesting and even hopeful statements. There was strong sales growth across the 17 weeks to Jan 30, up 45% with North America shining at 69%. However, they then go on to say that February has been extremely challenging. Which is not a good sign at all. For we’re all rather expecting things to get better currently, not worse.
That’s not, perhaps, why the Seraphine share price has collapsed though. The worry is rather more than that. Yes, it’s true that earnings – by EBITDA – are going to be below forecast but even that’s perhaps not it. It’s two different things that are possible causes.
The first is that some of the things that are going wrong really shouldn’t have done. “An underestimation of the level of sales tax and duties incurred on outbound and returned goods in our new markets of Canada & Switzerland.” Getting such numbers wrong doesn’t bolster confidence in the planning abilities of the current management. Sure, that’s something that can be dealt with – use bonded warehouses which they are going to do – but it shouldn’t have happened in the first place. This sort of retail is detail, detail, all the time detail.
The other is this “Management expects ecommerce demand to recover in March” Well, yes, OK, it may well do. But that’s an expectation from the management who couldn’t work out what sales taxes were going to be on returns, right? Or, being less sarcastic about this. There are two different sets of problems here. One is those details of logistics and taxation. The other is, well, where are all the customers? That second is not something we’d like to hear from a retail company, not at all.
As to what happens in the future that could go either way. Probably the most important determinant of the Seraphine share price will be any announcement in March that tells us that retail demand has returned – or hasn’t.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.