Interactive Investor

ii view: Burberry battles weak consumer demand

Shares for this British luxury goods company are down around a quarter year-to-date. Buy, sell, or hold?

19th December 2023 11:29

Keith Bowman from interactive investor

First-half results to 30 September

  • Total revenues up 4% to £1.39 billion
  • Like-for-like store sales up 1%
  • Adjusted operating profit down 6% to £223 million
  • Interim dividend up 11% to 18.3p per share
  • Net debt of £887 million, up from £460 million in early April

Guidance:

  • Full-year revenue hopes unlikely to be met if current weaker demand conditions continue
  • Full-year adjusted operating profit may now come in at the lower end of City forecasts of between £552 million and £668 million

Chief executive Jonathan Akeroyd said: We made good progress against our strategic goals, executing our priorities at pace. We continued to build momentum around our new creative vision with the launch of our Winter 23 collection in September, the first designed by Daniel Lee. 

“While the macroeconomic environment has become more challenging recently, we are confident in our strategy to realise our potential as the modern British luxury brand, and we remain committed to achieving our medium and long-term targets.

ii round-up:

Started in 1856, Burberry Group (LSE:BRBY) is today a British luxury brand whose shares are a constituent of the FTSE 100 index. 

Competing against rivals such as Lvmh Moet Hennessy Louis Vuitton SE (EURONEXT:MC) and Hermes International SA (EURONEXT:RMS), Burberry largely sells clothing products including outerwear and leather goods. 

Its products are sold on both a retail and wholesale basis, with retail generating around four-fifths of revenues and wholesale providing most of the balance.

Retail outlets as of late September numbered 216 stores, 135 concessions, 58 outlets and 32 franchised stores.

For a round-up of these latest results announced on 16 November, please click here.

ii view:

Management’s strategic pushes include simplifying and streamlining key processes to make the company more efficient, refurbishing stores and strengthening distribution. Long term, it has ambitions to reach £5 billion in annual sales, up from just over £3 billion in its last full financial year to early April. Asia-Pacific including China and Japan generates its biggest slug of sales at around 43%, followed by Europe, the Middle East, India and Africa at 33%, and the Americas the balance of 24%.

For investors, the still-difficult economic backdrop including heightened borrowing costs cannot be ignored. Same-store sales for its Americas region fell 10% during the second quarter. Costs for businesses generally remain elevated, while its sales in China now sit against a more strained relationship between it and the West.

More favourably, US interest rates at least may now be lowered in 2024, potentially aiding consumer spending going forward. A diversity of both product and geographical regions exists. A series of management initiatives continue to be pursued, while an estimated future dividend yield of around 4% is not to be ignored. 

For now, and while management actions such as refurbishing stores warrants consideration, investors may for now wish to await signs of improving profitability before adding to any existing shareholdings. 

Positives: 

  • Product and geographical diversity
  • Management initiatives

Negatives:

  • Souring Western relations with China
  • Currency movements can provide headwinds

The average rating of stock market analysts:

Hold

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