Interactive Investor

ii view: Burberry pushes revamped stores and social media

It's underperforming rivals but a new chief executive will take the helm soon. Buy, sell, or hold?

31st January 2022 10:55

Keith Bowman from interactive investor

It's underperforming rivals but a new chief executive will take the helm soon. Buy, sell, or hold? 

Third-quarter trading update to 25 December

  • Full-price sales up 26% compared to the same pre-Covid Q3 period two years ago
  • Now expects adjusted operating profit to grow by around 35% year-over-year

Chairman Gerry Murphy said:

"Full-price sales continued to grow at a double-digit percentage compared with two years ago, accelerating from the previous quarter and reflecting a higher quality business. Our focus categories outerwear and leather goods performed strongly as we continued to attract new, younger consumers to the brand. Despite the ongoing challenges of the external environment, we are confident of finishing the year strongly and providing an excellent platform on which to build when our new CEO Jonathan Akeroyd joins in April.”

ii round-up:

Founded in 1856 by Thomas Burberry, today Burberry (LSE:BRBY) has become a global luxury brand with annual sales of over £2 billion. 

It sells a range of clothing including outwear and leather goods. 

Burberry retail outlets as of late 2021 numbered 218 stores, 150 concessions, 58 outlets and 39 franchise stores. Retail provides its main distribution channel at 80% of sales, wholesale a further 18% and licensing the balance. 

For a round-up of this latest trading update, please click here.

https://www.ii.co.uk/investing-with-ii/international-investing/trading-fee-free-us-trading

ii view:

Following on from previous initiatives, Burberry continues to revamp its stores and build on digital innovation. Just over 30 stores are now formatted in its new design, including its second flagship Plaza 66, Shanghai store, and it remains on track to deliver around 50 new concept stores by the end of this financial year. Digital initiatives include marketing via social media channels including both Instagram and Tik Tok. 

Just over half its stores, concessions and outlets are in Asia, with the balance spread across the rest of the world. Accessories account for its biggest slug of sales at just over a third, followed by women’s and men’s wear at a little over a quarter each and children and other making up the balance.

For investors, Western tensions with regards to China are worth remembering given the importance of Burberry's Asia business. Challenges from the pandemic also persist, with tourism still significantly crimped, while its trading performance continues to lag other luxury brands such as Watches of Switzerland (LSE:WOSG) and LVMH Moet Hennessy Louis Vuitton (EURONEXT:MC). Burberry shares are up by around a tenth over the last year compared to near doubling for this watch retailer and 39% increase at LVMH. 

That said, some recovery in sales has been reported, a new chief executive could add vigour to its performance, while an estimated future dividend yield of around 2.5% is not to be overlooked in an era of ultra-low interest rates. In all, and with this latest trading update bringing an upgrade to profit expectations, investors may wish to stay patient for the long term. 

Positives: 

  • Brand strength attracting new and younger customers
  • Ongoing share buyback programme

Negatives:

  • Pandemic uncertainty
  • Currency movements can provide headwinds

The average rating of stock market analysts:

Hold

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