ii view: Burberry keeps guidance despite Hong Kong violence

Luxury brand Burberry continues its multi-year transformation plan, but analysts give the thumbs down.

Half-year results to 28 September 2019

• Revenue up 5% to £1.28 billion
• Adjusted operating profit up 14% to £203 million
• £14 million of store impairments relating to Hong Kong
• Net cash £670 million up from £647 million in September 2018
• Dividend up 3% to 11.3p per share
• Full-year guidance maintained 

Chief executive Marco Gobbetti said:

"We are pleased with our performance in the half, as we remain on track to deliver the first phase of our strategy. New product now represents a high proportion of our assortment and the customer response has been positive delivering strong double digit growth. We also continued to strengthen momentum around our brand and transform our distribution. We delivered financial results in line with guidance despite the decline in Hong Kong and we confirm our outlook for FY 2020."

ii round-up:

Founded back in 1856 by Thomas Burberry, today Burberry Group (LSE:BRBY) has become a global luxury brand with annual sales of over £2.7 billion. 

Its retail outlets at the end of September 2019 numbered 233 stores, 146 concessions, 52 outlets and 44 franchise stores. The group also operates wholesale and licencing businesses. 

In order to revitalise its iconic brand, Burberry has commenced a multi-year transformation plan. A drive towards digitalisation is under way, its stores are being revamped and for the most part it is exiting its non-luxury lines. 

For a round-up of these half-year results, please click here.

ii view:

Burberry offers investors the chance to buy into an iconic luxury British brand. Its transformation plan attempts to finesse the way in which its customers can buy its adjusted product range, while also keeping its prized brand name highly polished. 

For investors, potential shareholder returns prove a point of interest. The company's current cash balance of over £600 million is yet to be fully utilised. Despite current challenges in Hong Kong, exposure to Asia and China generating mid-teens sales growth provides encouragement. Less favourably, a prospective dividend yield in the region of 2% is not overly enticing, while a forward price/earnings (PE) ratio of close to 25 is above both the three- and 10-year averages.  

Positives: 

• First-half retail sales up 4% on a constant currency basis
• Net cash of £670 million
• Targeting cumulative annualised cost savings of £135 million in full-year 2022

Negatives:

• £14 million of store impairments relating to Hong Kong protests
• Brexit and the US/China trade spat could yet impact
• Revenue flat and adjusted operating profit down 6%

The average rating of stock market analysts:

Sell