This is why Burberry shares are bucking the trend today

Fewer tourists has made life tough for the upmarket fashion brand, but third-quarter results are packed with examples of improvement. Find out why the share price is up when other stocks are falling.

Burberry's (LSE:BRBY) change of tack is improving its fortunes, even though a general lack of tourists is still punching a hole through revenues.

The decision to move away from concessions and non-luxury partners to focus on full-price sales is one which not only underlines Burberry’s status as a high-end luxury brand, but is also having a meaningful impact on revenues, margins and profit.

This third-quarter update is littered with examples of these improved numbers, particularly when compared to the pre-pandemic levels of two years ago. Full-price sales overall in the quarter were ahead by 26%, which in itself is a considerable improvement from the 10% achieved in the second quarter of this financial year. Contributing to this further spike was an increase in full-price sales of 72% from the Americas, driven largely (and promisingly) by new customers.

• 10 stocks that could protect investors from inflation
• Read our tips and outlook commentary for 2022
• Subscribe for free to the ii YouTube channel for our latest share tips and fund manager interviews

At the same time the important line of retail revenues saw an increase of 5%, and the company’s outlook for the full-year is that adjusted operating profit will show an improvement of around 35% on the previous year, while also maintaining its previous targets on revenue growth and margins. Within its products, leather and outerwear are proving especially popular at the current time, with improved full-price sales of 29% and 38% respectively versus pre-pandemic levels.

Burberry remains committed to being both relevant to an emerging younger audience while also underlining its exclusivity as a brand. 

This has been achieved through innovative and sustained digital promotion, brand awareness through social channels with particular success coming through the likes of Instagram and TikTok and a new store concept, involving pop-ins and pop-ups. At the same time Burberry has continued its support for young people, with footballer Marcus Rashford remaining something of an ambassador for the brand.

Unfortunately, for the moment, the company is beleaguered by investors choosing to accentuate the challenges rather than the opportunities. The imminent arrival of a new CEO has unsettled some on the basis of a loss of momentum built up by the previous incumbent.

Regional lockdowns in parts of China and a chequered economic recovery in the region as a whole are also dragging on prospects, while the almost complete lack of tourism across many of its regions is an unavoidable headwind to revenues. While the return of the tourist would provide a meaningful boost to profits, the emergence of new variants has delayed the return to some sort of normality.

• Stockwatch: proof of a major threat to small-cap profits in 2022
• Fund and trust alternatives to Scottish Mortgage and Fundsmith Equity
• Friends & Family: ii customers can give up to 5 people a free subscription to ii, for just £5 a month extra. Learn more

As such, and despite Burberry’s undoubted progress on the elements within its control, the shares have managed a gain of just 1% over the last year, as compared to a hike of almost 13% for the wider FTSE100 index. Over the last two years, the price is down by 24% which gives some indication of the scale of the challenges ahead.

In the meantime, the market consensus of the shares as a "hold" is reflective of an undecided view on when Burberry will be able to engineer a return to its former glories, even though a successful direction of travel is emerging.