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Burberry laments the absence of travelling custom

The luxury goods company is experiencing a minor revival in Asia, but it is difficult to gauge the extent of pent-up demand
May 22, 2020

Burberry’s (BRBY) annual profits were smashed by a £241m charge relating to the outbreak of Covid-19. Half of the luxury goods group’s stores around the world are closed, although sales since the start of April in mainland China and South Korea are already ahead of this point last year.

IC TIP: Buy at 1,402p

The main items within Burberry’s mammoth charge were store impairments of £157m and inventory provisions of £68m. Most revenue losses in February were incurred in Burberry’s Asian markets, but the group has since experienced an uptick in activity in this region, stating that “it is likely there is a benefit from some repatriation of spending in mainland China”. However, Burberry also warned that the absence of travelling customers will delay the luxury industry’s return to normality.

The curtailment of normal trading activity also precipitated a collapse in free cash flow, which fell to £66m from £301m last year. Burberry experienced a £130m working capital outflow during the period. Inventories rose 11 per cent due to a fourthquarter sales slump, with comparable sales in the period down 27 per cent. Burberry has not declared a final dividend.

FactSet consensus forecasts give full-year 2021 EPS of 58.3p, rising to 78.41p in 2021.

BURBERRY (BRBY)

    
ORD PRICE:1,402pMARKET VALUE:£5.67bn
TOUCH:1,400-1,407p12-MONTH HIGH:2,362pLOW: 1,017p
DIVIDEND YIELD:0.8%PE RATIO:47
NET ASSET VALUE:300pNET DEBT:44%*
Year to 28 MarTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20162.5141670.037.0
20172.7739565.338.9
20182.7341368.941.3
20192.7244182.342.5
20202.6316929.811.3
% change-3-62-64-73
Ex-div:na   
Payment:na   
*Includes lease liabilities of £1.13bn