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Even the best of luxury goods companies are not immune to an economic downturn. In the first half, Burberry's underlying sales rose by 13 per cent, but since the period end "comparable store sales are down by a mid single-digit percentage" and the company's guidance is for this to deteriorate to "a mid to high single digit percentage decline in the second half". Broker Numis Securities expects full-year pre-tax profits to fall from £196m in 2008 to £163m, giving EPS of 25.3p (2008: 30.6p). The shares fell by 12 per cent to an all-time low of 175p.
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The US is proving to be a difficult market, with lower sales and gross margins. Trading in Spain continues to be weak - like-for-like sales were down 20 per cent in the first half - even though Europe, Asia and emerging markets showed decent underlying sales growth. Burberry is reacting to the downturn with planned cost savings of between £15m and £20m a year, which will be reflected in the next financial year, coupled with reduced capital expenditure and tightening of inventory levels. It also signed a Middle East joint venture to expand its market there.
| BURBERRY (BRBY) | ||||
|---|---|---|---|---|
| ORD PRICE: | 181p | MARKET VALUE: | £ 783m | |
| TOUCH: | 181-182p | 12-MONTH HIGH: | 588p | LOW: 181p |
| DIVIDEND YIELD: | 6.6% | PE RATIO: | 5 | |
| NET ASSET VALUE:* | 126p | NET DEBT: | 21% | |
| Half-year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Net div per share (p) |
|---|---|---|---|---|
| 2007 | 449 | 96 | 15.2 | 3.35 |
| 2008 | 539 | 97.0 | 17.3 | 3.35 |
| % change | +20 | +1 | +14 | - |
Ex-div:03 Jan Payment:29 Jan * includes intangible assets of £151.7m or 35p per share |
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More analysis of company results
The sharp downturn in trading is a worry and with the economic downturn deteriorating, there could be worse yet to come for Burberry as even the wealthy hold back their purchases in these turbulent times. Sell.
Last IC View: Fairly priced, 400p, 16 July 2008
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