ii view: Burberry sales plunge

Is the bad news now in the price at this iconic British luxury goods company?

Fourth-quarter trading update brought forward

• Comparable retail store sales down 30% 
• Available financial liquidity of £900 million

Chief executive Marco Gobbetti said:

"Since our February update, the material negative effect of Covid-19 on luxury demand has intensified and is now impacting the industry in all regions. 

“We remain confident in our strategy and the strength of our brand and I am exceptionally proud of our teams' resilience and commitment." 

ii round-up:

Luxury goods retailer Burberry (LSE:BRBY) today posted an unscheduled coronavirus induced trading update. 

Trading since late January had deteriorated significantly. Comparable retail store sales over the last six weeks and in the lead up to its 28 March year end had fallen between 40% and 50% as coronavirus related store closures took place.

While trading in mainland China had improved as virus hit stores opened, sales in the Americas and regions including Europe had fallen. Around 85% of its stores in the Americas are currently closed. 

As such, final quarter comparable retail store sales overall are expected to fall by around 30%. 

The shares moved 2% higher in afternoon UK trading, haven fallen by nearly 50% in the year to date. 

The global luxury brand group, founded back in 1856, is now implementing plans to contain costs and protect its financial position. 

Broker Morgan Stanley estimates that current full-year profit estimates have now been cut by just over 20% as a result of the coronavirus outbreak. 

ii view:

Burberry offers investors the chance to buy into an iconic British luxury brand. Before battling the coronavirus, it had begun a multi-year transformation plan. A drive towards digitalisation has commenced, its stores are being revamped and for the most part it is exiting its non-luxury lines.

For investors, as Burberry approaches the end of the current financial year, attention now looks to be turning towards 2021. A potential emergence by Asia first from the coronavirus grip certainly offers appeal, but Burberry is taking a big hit, and the timing for the corona crisis to pass is still unknown. As with many equities currently, Burberry shares might look cheap now when we look back in 12 months time, but this is too tough to call near-term. 

Positives: 

• Pursuing a cost saving programme
• Ten consecutive years of dividend growth

Negatives:

• Coronavirus uncertainty
• Its multi-year transformation plan may not fully deliver

The average rating of stock market analysts:

Hold