ii view: Burberry's recovery strategy starts well

Third-quarter trading update to 28 December

• Like-for-like sales down 4%
• Currency adjusted retail revenue down 3% to £659 million

Guidance:

• Now expects second-half profits to broadly offset first-half losses

Chief executive Joshua Schulman said:

"Since launching Burberry Forward in November, we have moved at pace to advance our strategy to reignite brand desire, improve our performance and drive long-term value creation. We are encouraged by the response to our "It's Always Burberry Weather" outerwear campaign and "Wrapped in Burberry" festive campaign. These activations resonated with a broad range of luxury customers leading to an improvement in brand desirability and strength in outerwear and scarves. 

“The acceleration of our core categories reinforces our belief that Burberry has the most opportunity where we have the most authenticity and that our strategic plan will deliver sustainable, profitable growth over time. However, we recognise that it is still very early in our transformation and there remains much to do."

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ii round-up:

Started back in 1856, Burberry Group (LSE:BRBY) is today a British luxury brand whose shares are a constituent of the FTSE 250 index. 

Competing against rivals such as Ralph Lauren Corp Class A (NYSE:RL) and Hugo Boss AG (XETRA:BOSS), Burberry largely sells clothing products including outwear and leather goods. 

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

Retail outlets as of late December numbered 235 stores, 143 concessions, 54 outlets and 33 franchised stores.

For a round-up of this latest trading update announced on 24 January, please click here.

ii view:

Chief executive Joshua Schulman, appointed in July 2024, came to Burberry having worked at companies including Michael Kors, Coach, Jimmy Choo and Gucci. A back-to-basics strategy includes a re-emphasis on outerwear, revamped marketing campaigns and re-introducing lower product pricing points for some product categories such as leather goods.  

Geographically, Asia remains dominant, generating around 42% of sales over its last financial year, split relatively evenly between China and the rest of Asia Pacific. Europe, the Middle East, India and Africa comes in next at 24%, followed by the USA at 18%, the UK at 10% and Latin America most of the balance. 

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For investors, an arguable previous loss of strategic focus at a time of pressured consumer spending helped generate an adjusted first-half operating loss of £41 million during the current financial year. Comparable sales for its core Asia Pacific region fell 9% during this latest quarter. Costs generally for businesses remain heightened. The dividend is now suspended, while group net debt before lease liabilities of £278 million as of late September, contrasts with net cash of £63 million the year before. 

On the upside, revamped marketing, adjusted product pricing and an exit of inventory during this latest quarter now sees management forecasting a possible full-year breakeven compared to a previous loss. Comparable sales for the Americas business gained 4%. A halting of the dividend provides increased spending flexibility, while previous rumours of takeover interest could resurface should Burberry’s recovery push derail. 

On balance, newly implemented strategic focus now offers hope. That said, an analyst consensus estimate of fair value at close to £11 implies Burberry shares may be up with events.  

Positives: 

• New strategic focuses
• Product and geographical diversity

Negatives:

• Difficult relations between the West and China
• Currency movements can provide headwinds

The average rating of stock market analysts:

Hold