ii view: Store closures overhang Burberry

Despite the loss of the dividend to Covid, Burberry is confident that it can bounce back. 

Full-year results to 28 March 2020

• Revenue down 3% to £2.63 billion
• Reported operating profit down 57% to £189 million
• Net cash position of around £890 million
• Not paying a final dividend

Guidance:

• Offering no full-year 2021 financial estimates
• Expect first quarter (to end June 2020) to be severely impacted by store closures

Chief executive Marco Gobbetti said:

"Prior to Covid-19, we were delivering strong momentum across our brand and product, with sales ahead of our expectations. Since then, the global health emergency has had a profound impact on the world, our industry and Burberry but I am very proud of the way we have responded. 

“We have taken swift action to mitigate the financial impact on our business, while prioritising the safety and wellbeing of our teams and customers. We have a strong balance sheet and liquidity, with space for investment when markets recover. 

“We have found new ways to strengthen our connection with consumers, drawing on our digital leadership. It will take time to heal but we are encouraged by our strong rebound in some parts of Asia and are well-prepared to navigate through this period. Now, more than ever, our strategy to secure our position in luxury fashion is key.”

ii round-up:

Founded back in 1856 by Thomas Burberry, today the company has become a global luxury brand with annual sales of over £2.6 billion. 

Its retail outlets at the end of March 2020 numbered 218 stores, 149 concessions, 54 outlets and 44 franchise stores. The group also operates wholesale and licencing businesses. 

In order to revitalise its iconic brand, Burberry (LSE:BRBY) previously began a multi-year transformation plan. 

For a round-up of these full-year results, please click here.

ii view:

Burberry offers investors the chance to buy into an iconic luxury British brand. Before battling the coronavirus, it had begun a multi-year transformation plan. A drive towards digitalisation is underway, its stores are being revamped and, for the most part, it is exiting its non-luxury lines. It is also placing a greater emphasis on leather and accessories, areas it believes to be more resilient and fastest growing segments of the luxury market.

Accessories currently account for 36.7% of its retail and wholesale sales, followed by Women’s at 30.8%, Men’s at 27.6% and Children, Beauty and Other at just under 5%. Consumer response to its new collections was summarised by management as “very positive” prior to Covid-19. But the pandemic has hit it hard, with around half of its stores closed. 

For investors, the loss of the dividend, although arguably sensible, is a blow. But some positive signs under its transformation plan are emerging, while costs continue to be cut. Its early hit from the pandemic given its Asian exposure could also see it benefitting from early recovery. That said, with China, Hong Kong and US tensions now back in focus and pandemic uncertainty still high, investors might demand solid evidence of a sustainable recovery. 

Positives: 

• Transformation plan
• Pursuing a cost saving programme

Negatives:

• Coronavirus uncertainty
• Asia Pacific accounts for around 40% of sales

The average rating of stock market analysts:

Hold