The arrival of luxury goods veteran Marco Gobbetti as chief executive at Burberry (BRBY) will mark a new chapter for the global brand come 2017. The decision to move design boss Christopher Bailey out of the hot seat to better concentrate on the creative vision came after prolonged dissatisfaction with the group's performance - it reported low single-digit percentage decline across all markets, with specifically weak trading patterns in Hong Kong and continental Europe, during the first quarter. Mr Gobbetti comes highly recommended, and with 20 years of experience in the luxury retail industry. There are other reasons to be positive this year, including beneficial foreign exchange rates and waning concern about the group's reliance on Asian shoppers. All in all, it's our view that the shares are still worthy of a long-term position in anyone's portfolio, and a second-quarter update next week may well provide evidence of improving fortunes.
- New chief executive
- Global exchange rate boost
- Tourism shopping improving
- Digital and innovation industry leader
- Reliance on Asia Pacific customers
- Competitive retail environment
So welcome was Mr Gobbetti's appointment that Burberry's shares actually rose around 6 per cent on the news despite a 3 per cent dip in like-for-like sales during the opening quarter. Sentiment for the stock was also helped by news of a combined £90m full-year profit boost across the retail and wholesale divisions as a result of the strengthening of global currencies against sterling. While many retailers stand to suffer as a result of a weaker pound, Burberry makes enough revenue in US dollars to significantly outweigh any impact from sourcing in that currency.
Global exchange rates also have positive implications in other ways. Tourist shopping is an important component of luxury revenue, with research by Bain putting it at 35 per cent of global luxury sales. According to data from consultancy Global Blue, tourism spend in August continued to decline, but improved significantly relative to July. By destination, the UK saw the biggest sequential improvement while South Korea also remained strong. As such, broker UBS reckons Burberry will be able to report positive underlying sales growth for the second quarter.
The reliance on Asian growth has been a concern for luxury retailers over recent years due to slowing economic activity in the region. But Burberry's investors now have reason to be optimistic in this regard. Travel worries following several terrorist-related events in Paris, Brussels and Nice as well as increased import restrictions have limited spending by Chinese consumers both at home and abroad. But City analysts believe sales trends have rebounded in Mainland China for Burberry, and the overall decline in Chinese spending has slowed.
| BURBERRY (BRBY) | ||||
|---|---|---|---|---|
| ORD PRICE: | 1,526p | MARKET VALUE: | £6.7bn | |
| TOUCH: | 1,525-1,527p | 12-MONTH HIGH: | 1,529p | LOW: 1,039p |
| FORWARD DIVIDEND YIELD: | 2.9% | FORWARD PE RATIO: | 20 | |
| NET ASSET VALUE: | 352p | NET CASH: | £660m | |
| Year to 31 Mar | Turnover (£bn) | Pre-tax profit (£m)* | Earnings per share (p)* | Dividend per share (p) |
|---|---|---|---|---|
| 2015 | 2.52 | 456 | 76.9 | 35 |
| 2016 | 2.51 | 421 | 69.9 | 37.0 |
| 2017* | 2.74 | 409 | 68.9 | 39.3 |
| 2018* | 2.84 | 436 | 74.7 | 41.1 |
| % change | +3 | +7 | +8 | +5 |
Normal market size: 1,500 Matched bargain trading Beta: 1.18 *Liberum forecasts, adjusted PTP and EPS figures | ||||
