ii view: Burberry – buying opportunity or value trap?

Full-year results to 30 March

• Total revenues down 4% to £2.97 billion
• Q4 like-for-like store sales down 12%
• Adjusted operating profit down 34% to £418 million
• Final dividend of 42.7p per share
• Total dividend payment for the year unchanged at 61p per share
• £400 million share buyback completed in the year
• Net debt of £1.13 billion, up from £460 million a year ago

Guidance:

• Wholesale revenue estimated to fall by around 25% in H1
• Expects a currency headwind of £30 million to revenue and £20 million profit

Chief executive Jonathan Akeroyd said:

"Executing our plan against a backdrop of slowing luxury demand has been challenging. While our FY24 financial results underperformed our original expectations, we have made good progress refocusing our brand image, evolving our product and strengthening distribution while delivering operational improvements. 

“We are using what we have learned over the past year to finetune our approach, while adapting to the external environment. We remain confident in our strategy to realise Burberry's potential as the Modern British Luxury brand and in our ability to successfully navigate this period."

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ii round-up:

Started in 1856, Burberry Group (LSE:BRBY) is today a British luxury brand whose shares are a constituent of the FTSE 100 index. 

Competing against rivals such as Ralph Lauren Corp Class A (NYSE:RL) and Hugo Boss AG (XETRA:BOSS), Burberry largely sells clothing products including outwear and leather goods. 

Its products are sold on both a retail and wholesale basis, with retail generating around four-fifths of revenues and wholesale providing most of the balance.

As of late March, there were 227 retail stores, 139 concessions, 56 outlets and 33 franchised stores.

For a round-up of these latest results announced on 15 May, please click here.

ii view:

Group strategic pushes include refurbishing its stores, strengthening its supply chain, and simplifying and streamlining its key processes to improve efficiency. In product terms, accessories account for 36% of sales, followed by men’s and women’s items each at close to 30%, and children’s and other items the balance of 5%. Geographically, Asia-Pacific including China and Japan generates its biggest slug of sales at 44%, followed by Europe, the Middle East, India and Africa at 35% and the Americas the balance of 21%.

For investors, the tough economic backdrop, particularly for China, cannot be overlooked, and both Asia and the Americas suffered double-digit like-for-like sales declines during the latest fourth quarter. Geopolitical tensions and their potential influence on regional sales such as those in the Middle East warrant consideration, while rising group debt now leaves the net debt-to-adjusted profit (EBITDA) ratio at 1.4 times and above management’s target range of 0.5 to 1 times. 

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On the upside, the impact of the pandemic on China sales may finally have washed through, and expected interest rate cuts in the USA and elsewhere could boost consumer demand. A series of management initiatives continue to be pursued, while a forecast dividend yield of close to 5% is not to be overlooked. 

Burberry shares are down 60% from their 2023 peak at prices rarely seen since 2010, but where there has at least been support for the shares in the past. However, a revamped product offering under relatively new designer Daniel Lee and wider actions such as refurbing stores, require patience. Management outlook comments urging caution for at least the first half of this new fiscal year might also mean many investors demand evidence of a recovery before making a move.

Positives: 

• Product and geographical diversity
• Management initiatives

Negatives:

• Souring Western relations with China
• Currency movements can provide headwinds

The average rating of stock market analysts:

Hold