Retail revenues were ahead of expectations up by 3% to £478m with strength returning to Asian markets as the UK leads the way in Europe. The Share Centre recommends Burberry as a ‘hold’ but will not discourage buying on dips
As Burberry updates the market Helal Miah, investment research analyst at The Share Centre, explains what it means for investors:
“This morning, the share price for luxury retailer Burberry jumped 5% following the group’s encouraging Q1 trading update.
"Retail revenues were up 3% to £478m on an underlying basis and ahead of market expectations. Investors should note that it seems some strength is returning to the Asian markets as those in Mainland China saw mid-single digit growth whilst markets in Hong Kong are also improving. Moreover, the UK continues to lead the way in sales in Europe, although management did not describe why but from previous updates we know this to be down to the weak sterling and tourists spending more in UK outlets. Investors should however be aware that there was a deceleration towards the end of the quarter. In the US, there was a decline in sales which can likely be explained by the strong dollar, although US travellers were spending abroad. However, there are certain regions such as Korea, the Middle East and Italy where economic factors are still holding back sales.
“Overall, this a strong set of results demonstrating that macro-economic issues that affected some of its key regions are fading and some confidence is returning amongst consumers. Operationally, the company also performed well, as it’s on track to deliver £50m of cumulative sales by the year end. Furthermore, the group has reduced the number of product lines on its shelf as well as being on track with its strategic partnership with Coty on Beauty products.
“Investors should note that Marco Gobbetti has finally taken over as CEO which should help the group’s focus. In his first statement as CEO he suggested that E-commerce will continue to be a focal point for future sales growth and that Burberry will focus on increasing productivity from its current portfolio of stores. Management remain confident as they have maintained their guidance for full year profit before tax, provided there are no significant foreign exchange rate movements since 30 June.
“We believe that some of the challenges faced by the luxury sector over the last few years are fading. Indeed, Chinese consumers are returning while a pickup in the European economy is showing through to the luxury sector. Investors should appreciate that Burberry’s share price has shown a strong recovery over the year, part of which may be because it has been dragged up by the rest of the market but we believe investors should have less to worry about in the sector now. While we still maintain our ‘Hold’ recommendation on the stock, we would not discourage investors from buying on the dips for those seeking capital growth and willing to accept a medium level of risk.”