Hard-won gains continue to evaporate as Burberry does no more than expected, writes our head of markets.
Still being in the early stages of its transformation plan is dragging on these full-year numbers, but there is little doubt that Burberry's (LSE:BRBY) aspirations are high.
Revitalising its iconic brand may take some time, but Burberry seems well-positioned. It is continuing to invest in itself, such as its further push towards digital, its stores are being revamped and for the most part the company is shedding its non-luxury lines.
At the same time, the Riccardo collection seems to have been well received, with a growing social media presence adding to the "brand heat" which Burberry is chasing.
In terms of the numbers, the business is being carefully managed amid the transformation, with cost savings on track, operational expenditure down, revenues in line and a 7% increase in operating profit.
The net cash on the balance sheet has also enabled an increase to the dividend as well as the announcement of a £150 million share buyback programme, which is a clear indication of management's confidence in prospects.
Source: TradingView Past performance is not a guide to future performance
Given the scale of the planned changes, there inevitably remains much to do. Growth in its key Asia Pacific region, which accounts for 41% of revenues, is still in evidence but is more subdued, potentially exacerbated by the ongoing spat between the US and China and the economic consequences.
Growth in the US itself is also soft, the gross margin has suffered after further investment in the business and foreign exchange headwinds, and the guidance provided by the company paints nothing more than a picture of broadly stable revenues in the nearer term.
Meanwhile, even though there has been an increase to the dividend, the current yield of 2.2% would tend to put Burberry into the growth rather than income category.
Whether investors will wait to see the results of the transformation is moot. Burberry is making progress but is not shooting the lights out and has the difficult juggling act between running a profitable concern while changing some of its constituent parts.
The shares have had a reasonable run, having risen 6.5% over the last year, which compares to a 6% decline for the wider FTSE 100 index, but the absence of an obvious bright spot on the horizon has resulted in some initial share price disappointment. The market consensus of the shares as a ‘weak hold’ may yet remain in force for the immediate future.
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