Supreme shares down 18% as inflation clouds growth

Shares of Manchester-based fast-moving consumer products wholesaler Supreme plc fell 18% on Tuesday after it published a trading update for the 12 months ended March 31, 2022, in which it warned its growth will be tempered “by commodity price inflation within Sports Nutrition & Wellness and the increases in the overhead base relating to wage and transport costs.”

Supreme said it performed strongly throughout the year, driving organic growth across its core categories, completing two strategic acquisitions financed by free cash “and establishing product traction with leading UK grocery customers.”

The company expects to report revenue in excess of £130 million (2021: £122 million) and adjusted EBITDA of no less than £21 million for the year (2021: £19.3 million).

“The Vaping division is expected to report 10% revenue growth owing to new listings with Sainsbury’s and Morrisons as well as continuing growth across all of its discount retail customers,” said Supreme.

“This result will be enhanced by increases to its gross margin profile driven by further manufacturing gains. With increasing levels of government support for vaping, the group expects the double-digit revenue growth for this category to continue.

“The Batteries and Lighting divisions have continued to show their defensive characteristics and are expected to report growth in revenue of around 2% and 5%, respectively, and higher rates of gross margin as a percentage of sales when compared to 2021, highlighting the group’s buying power and increasing breadth of distribution.

“The Sports Nutrition & Wellness division has continued to demonstrate its potential with excess of 100% revenue growth. However, raw material price inflation, particularly recently in relation to whey powder, has impacted profitability.”

In its outlook, Supreme said: “Looking at FY23, the group is expecting to deliver another year of profitable growth and increasing levels of cash generation, predominantly driven by Supreme’s strong Vaping sales footprint.

“However, this performance will be tempered by commodity price inflation within Sports Nutrition & Wellness and the increases in the overhead base relating to wage and transport costs.

“Management has already taken steps to mitigate the external factors, including buying forward whey, and will also be continually reviewing potential price increases and ongoing manufacturing and distribution rationalisation.

“The group remains fully focused on driving organic growth, closely balanced with strategic acquisitions, having agreed a new £25 million RCF facility with HSBC in March 2022.

“The board remains confident that the group will continue to deliver both organic and acquisition led growth this financial year and beyond.”