ii view: betting on Burberry's turnaround

Full-year results to 28 March

• Revenue down 2% to £2.42 billion
• Adjusted operating profit of £160 million, up from £26 million in the previous year
• Gross profit margin up 5.3% to 67.9%
• No dividend payment  
• Net debt of £852 million, down from £1.1 billion a year ago

Guidance:

• Expects revenue growth for the year ahead
• Continues to expect further profit margin improvement for the year ahead

Chief executive Joshua Schulman said:

“This financial year marks a meaningful inflection point for Burberry. We’ve returned to profitable comparable sales growth, with a strong fourth quarter driven by momentum in Greater China and Americas. Our strategy is working and there are clear opportunities for further growth.

“As we look ahead, while mindful of the uncertain macro-economic environment, our focus is on disciplined execution of Burberry Forward. With increased brand relevance and product authority, I am more confident than ever that Burberry is firmly positioned for long-term value creation.”

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ii round-up:

Started in 1856, Burberry Group (LSE:BRBY) today employs over 7,000 people.

Competing against rivals such as Moncler SpA (MTA:MONC) and Ralph Lauren Corp Class A (NYSE:RL), Burberry largely sells clothing products including outwear and accessories such as scarves.

Group sales via its own stores generate 85% of revenues with sales to other retailers via its wholesale division making up most of the balance.

Retail outlets as of late March numbered 222 stores, 134 concessions, 54 outlets and 27 franchised stores.

For a round-up of these latest results announced on 14 May, please click here.

ii view:

Appointed in July 2024, chief executive Joshua Schulman came to Burberry having worked at companies including Michael Kors, Coach, Jimmy Choo and Gucci. His recovery programme called ‘Forward Burberry’ includes reigniting brand desire, enhancing its product offering and deepening connections with its customers.

Geographically, the combined Europe, Middle East, India and Africa (EMEIA) region generated most sales over this latest financial year at 35%. That was followed by Greater China at 28%, the Americas 21%, and Asia Pacific the 16% balance.

For investors, a 2% fall in fourth-quarter sales for its biggest region is not to be ignored, with war in the Middle East likely impacting demand. The many factors which sit outside of management’s control such as the weather should not be overlooked. US trade tariffs and a more strained relationship between the West and China now persist, while Burberry’s halted dividend payment contrasts with yields of over 3% for fellow retailers Dr. Martens  Ordinary Shares (LSE:DOCS) and Nike Inc Class B (NYSE:NKE).    

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More favourably, final-quarter sales for three of its four geographical regions increased, with growth in profit margin ahead of City hopes. Annualised cost savings of £100 million continue to be pursued with £80 million delivered over this latest financial year. A halting of the dividend provides increased spending flexibility, while previous rumours of takeover interest could resurface should Burberry’s recovery derail.

In all, risks remain and the recovery has lost some momentum over the past year, but a consensus analyst fair value near £13 per share may convince more speculative investors to maintain an interest.  

Positives:

• Renewed strategic focuses
• Product and geographical diversity

Negatives:

• Fashion can be highly fickle
• Currency movements can provide headwinds

The average rating of stock market analysts:

Cautious buy