Interactive Investor

Burberry has red-hot first quarter

16th July 2021 08:26

Richard Hunter from interactive investor

Despite a lack of tourist trade, Burberry has had a great Q1. Could it receive more of the globally accumulated consumer savings?

Burberry Group (LSE:BRBY) has bolted out of the blocks in its new financial year, rising to pre-pandemic sales levels virtually across the board.

In the Americas, sales rose by 341% in its first quarter compared to last year and by 34% compared to pre-pandemic. In the important Asian region, meanwhile, the figures showed growth of 27% and 7% respectively. 

The turnaround strategy to exit non-luxury lines and to limit markdowns on selling prices has not been enough to deter a new generation of local, young customers who have been lured by the cachet of the brand via Burberry’s continuing social media activity. The brand heat which the company has generated has resulted in full-price sales having risen by 121% versus last year and, more tellingly perhaps, by 26% against pre-pandemic levels.

This is also illustrated by digital full-price sales having more than doubled compared to pre-pandemic, with strong growth experienced in every region.

At the same time, the lines of outerwear and leather continue to be popular, while the guidance of a 60% uplift in wholesale for the first half is another strong indicator of momentum. Within the overall numbers, a 55% increase in full-price sales in mainland China is a significant tailwind.

The virtual disappearance of tourism is having a lingering effect on Continental Europe in particular, however, where sales in the three months to the end of June remain down by 38% compared to pre-pandemic, despite having risen by 146% against last year.

Meanwhile, the removal of the non-EU VAT scheme likely to have an impact on future sales, while ongoing political tensions in the Asian region can also reignite quickly, although Burberry is doing all that it can to remain relevant and aspirational in the region. Apart from the anticipated uplift in wholesale, overall guidance for the full year remains unchanged given the challenges of the external environment.

Overall, it seems that at least some of the globally accumulated consumer savings seem to have made their way towards Burberry products, mitigating some of the lost income from a lack of international travel, and resulting in retail revenues spiking 86%.

The share price has also recovered to pre-pandemic levels, having risen by 41% over the last year, as compared to a hike of 12% for the wider FTSE100. Indeed, given the strength of the start to the new year, the long-standing market consensus of the shares as a 'hold' could even be subject to some upgrades.

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