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Burberry released flat revenue growth for Q1 22/23, ahead of consensus and our expectations. Strong rebounds in Japan and EMEIA partially offset the sales contraction in Mainland China (-35% yoy). However, the strong momentum in the Americas is starting to wane. Although the group saw an improved performance in China since stores reopened in June, the uncertain macroeconomic situation (lower-than-expected GDP growth in Q2 22) in the country still raises doubts for the rest of the year.
Burberry Group plc
We no longer find Burberry''s valuation attractive relative to our Outperform stocks When we upgraded Burberry in June 2021 we suggested it was a ''Division 2'' player (an average business) priced as a ''Division 3'' player (structurally impaired). In calendar 2H21, our call did not work as (i) the company announced the departure of CEO Gobbetti, leading to concerns Creative Director Tisci might leave, and (ii) top line underperformed ''Division 1'' players more markedly. However, in calendar 1H22, Burberry''s share price performed second best in our 16 stock luxury universe, down only 10% (after Hugo Boss -6%) vs a c30% median. We attribute this mostly to: (i) value stocks'' lower vulnerability to rising interest rates; (ii) Burberry consistently raising earnings guidance in spite of disappointing organic top line thanks to higher gross margin, better cost control and favourable FX; (iii) new CEO Akeroyd endorsing existing medium-term financial targets. Burberry now trades on c16x cal PE 2023 on our estimates which are c9% below consensus, no longer an attractive risk/reward, in our view, versus our Outperform rated stocks. We expect flat Retail LFL in 1Q (due on 15 July) On 15 July, we expect Burberry to report flat Retail LFL in 1Q ending June 22, with roughly one-third of the business (China) down c40% and two-thirds (ROW) up c20%. We note, however, that US could show a moderation in growth due to Burberry''s exposure to entry-level products such as part of its shoe business, whilst other luxury companies do not seem to have seen any slowdown yet. FY Mar 24 EPS estimates cut by 11%, downgrading to Neutral (TP 1,900p from 2,500p) We leave our FY Mar 23 EBIT estimate unchanged in spite of lower organic sales growth forecasts (1.8% vs 7.8% previously) as FX is a c18% EBIT tailwind. We cut our FY Mar 24 EPS estimates by 11% and introduce Mar 25 estimates that are lower than those we used in our DCF for that year. On top of the worsening macro...
BURBERRY - SELL | 1900p Likely more focus on top line growth than on profitability Q4 sales slightly impacted by Covid in China Brand elevation, product innovation and retail network should be the Top priorities of new CEO We favour others luxury groups
Burberry has published an encouraging FY21/22 result, reflecting a good progression in margin and brand quality. However, the group confirmed that the outlook is dependent on the impact of COVID-19 in China, and the group is actively managing the headwind from inflation within the current uncertain macro-economic environment. The new CEO reaffirmed the continuation of the strategic direction in the medium term, offering greater stability.
FY22 EBIT likely a touch higher in spite of softer 4Q top line due to Covid Burberry will report FY Mar 22 earnings on 18 May. We expect weaker-than-expected Retail comps in 4Q ending Mar 22 (7% vs 10% previously) entirely due to Covid restrictions impacting China sales for the entire luxury industry more meaningfully since March. Other key markets - US, Europe, Japan, Korea, Middle East - should have remained robust, in spite of higher inflation and the Ukraine situation. This 7% comp figure should still mean an underperformance compared to ''Division 1'' players (we notably forecast 23% organic growth at LVMH Fashion and Leather). At the EBIT level, we are nevertheless now forecasting a slightly higher figure (GBP515m vs GBP510m previously) due to lower-than-expected opex. New CEO on board since 15 March Russians account for 1.2% of total sales. Burberry recently implemented a 10% average price increase, ahead of cost inflation (c4-5%). New CEO Jonathan Akeroyd joined on 15 March. In our 11 Feb Ready to bounce report, we analysed its track record at Alexander McQueen then Versace and argued he should find Burberry in better shape than a few years ago, but would need to address the limited brand desirability improvement in Europe. Since J. Akeroyd did not have access to internal information until last week, the proper strategic update should happen in November rather than May. However, we believe the market could already react positively to some initial action points providing comfort around the medium-term guidance calling for HSD organic sales growth and c20% EBIT margin by FY Mar 24 (which should not be considered as a ceiling). TP lowered to 2,500p (from 2,650) on higher WACC Our FY Mar 22-24e estimates (3%, 6% and 11% above consensus) are broadly unchanged. However, like for other luxury stocks, we are increasing our WACC on Burberry from 8.4% to 8.9%, hence our lower TP. Burberry is trading on calendar PER of 15.8x 22e and 14.3x 23e,...
What''s new year to date? The 19 January 3Q (Oct-Dec 21) sales update in itself was not much of an event: technically a small beat, the 7% Retail comp (consensus 6%) was not impressive relative to peers unless someone was ready to only look at the full-price sales sequential acceleration. The key points for us were: Burberry (i) raising its FY Mar 22 EBIT guidance, and (ii) confirming its medium-term sales and EBIT guidance (high single digit top line growth and meaningful margin accretion at constant FX) ahead of the arrival of its new CEO Jonathan Akeroyd mid-March (who will in our view endorse these objectives). Why the stock could finally work in 2022 Beyond the valuation angle and estimates going up rather than down, we see several reasons to like the stock. 4Q (Jan-Mar 22) should be the first quarter no longer impacted by the ''markdown effect'' and thus see a sequential acceleration. New CEO Jonathan Akeroyd - joining after a strong track record at Versace and Alexander McQueen - will find Burberry in better shape than a few years ago, notably from a ''platform'' perspective (substantial distribution upgrade, gross margin improvement driven by less markdowns, higher investment levels fuelled by cost savings). From a brand heat perspective, compared to 2017, i.e. just before Riccardo Tisci joined as Artistic Director in 2018, we believe Burberry has made progress with US consumers, not much with Europeans and lost ground in China (more due to the Cotton issue than product though). Beyond what Jonathan Akeroyd will bring in terms of strategic vision, this mixed 4yr-evolution will in our view require some tweaks/changes in terms of design. TP unchanged at 2,650p; reiterate Outperform Our TP is unchanged at 2,650p (FY 22-24e EPS raised by 7%, 5% and 2%, with BNPP Exane now 3%, 5% and 10% above consensus). Burberry is trading at c16.7x calendar 2023 PER and the share price is 17% below pre-Covid level. There is no takeover premium in the...
Reaping the benefits of reducing markdowns, Burberry saw full-price sales increase by 15% yoy in the quarter. The strong performance from its own retail and e-commerce channels, especially in the key product categories leather goods and outwear, has led the group to upgrade its expectations for FY21/22 adjusted operating profit. The new CEO, Jonathan Akeroyd, will take up his post two weeks earlier than planned. The group gave the implication that the new CEO will continue to focus on the same strategic areas.
BURBERRY - SELL | 1800P(-8%) H1 generally disappointing, we still favour other luxury players Clear deceleration in APAC in Q2 H1 adj EBIT margin up 120bp at same FX on 2Y Sell recommendation unchanged
A solid performance and well above expectations On 16 July, Burberry reported Retail comps up 90% y/y in 1Q ending June, a sequential acceleration on a 2-year stack basis to +1% (from -5% in Q4 ending Mar 21). Some on the buy side might have anticipated c90%, but company-compiled (70%) and VA consensus (80%) were well below. Exiting markdowns a positive step The company calculates a LDD headwind from exiting markdowns, but we would instead stress that the absence of markdowns (together with the HSD % price increase on most women''s leather goods on 3 May) will have a positive impact on GM and brand image. In addition, Burberry raised its H1 ending Sep 21 Wholesale guidance to +60% (from +50%), which is a positive sign. Why still an Outperform after the CEO departure announcement? Prior to the CEO departure announcement on 28 June, our positive stance on Burberry was based on stock ''dislocation'', i.e. significant share underperformance vs the sector, even though only LVMH, Hermes and Richemont did significantly better on a 2-year stack in calendar 1Q21. Since June, Burberry shares have lost 8% in spite of the sales beat. We find this too severe given in our view the valuation already reflected market skepticism of its CEO and Artistic Director. In addition, given MandA questions are asked in most of our discussions with investors, it is worth noting there is no speculative premium in the Burberry share price in spite of it being the only 100% free float: most other potential takeover targets are family controlled and thus more difficult to acquire. Trading on a c. 30% discount to peers - we are Outperform As we stressed in our 2 June Report, facts and perception don''t always match. Whilst all luxury shares are now above pre-Covid 19 levels, Burberry is still 11% below its Jan 2020 peak. On our estimates, the stock trades on 20.2x cal. 2022 PER, a c30% discount to peers. Yet in the last decade, BRBY traded at a premium until the beginning...
Burberry has delivered a good start to the year. The strong full-price growth, especially in the main strategic focus categories (leather goods, outwear and shoes) showing a very encouraging trajectory. However, the ongoing reduction in markdowns will continue to impact the performance for FY21. Although Burberry has confirmed its mid-term guidance and reaffirmed that its mid-term strategic plan will remain unchanged. The unavailability of a meaningful update on the recruitment of the new CEO and leadership restructuring are resulting in limited mid-term visibility.
Burberry’s stock slumped 8% after the group’s CEO unexpectedly announced his departure to join the Italian peer group Salvatore Ferragamo. Although Marco Gobbetti will remain with Burberry until the end of FY21 and support the executive team through the transition, his departure at Burberry’s most critical turning point is likely to make the brand’s turnaround more challenging and slow it down.
Lagging behind for the wrong reasons Whilst all luxury stocks share prices are now above their pre-Covid 19 levels, Burberry is still 8% below its Jan 2020 peak of 2,329p. The stock is trading on 21.3x CY 2022 PER, a c30% discount to peers. We believe the discount in valuation is currently pricing in that Burberry (i) will take much longer to recover from Covid-19 than peers and/or (ii) is structurally a weaker brand. We disagree on both assumptions and find sell side and investor sentiment too bearish. Notably, the market has focused on short-term negative impact of Burberry''s conscious decision to reduce markdown to its topline rather than the long-term positive impact to its brand image and gross margin. Current transformation not priced in Since Covid-19 started, apart from Q3 ending Dec 2020 due to the above-mentioned markdown reduction, Burberry has posted better-than-expected sales. From a gross margin and EBIT margin standpoint, positive surprises in H1 and H2 have been significant, leading to continuous consensus estimates upgrades. On 13th May 2021, Burberry reported (i) Retail comps for Q4 ending March 2021 only 5% below 2019 levels overall and 12% above in terms of full price sales, and (ii) a FY March 21 EBIT margin of 16.9%, 50bp higher than in FY March 20. True, best-in-class companies LVMH, Hermes and Richemont have done much better. But Burberry''s top line performance puts the company in what we would consider the luxury''s ''division 2'' with Kering, Prada and Brunello Cucinelli, and comfortably ahead of ''division 3'' (Swatch, Ferragamo, Tod''s, Hugo Boss and Moncler). In our view, in spite of Covid-19, Burberry''s strategic transformation is on track and we believe its medium-term objectives to grow revenues at a high single digit CAGR and reach an EBIT margin of at least 20% are realistic. Yet we think this is not priced-in in the current valuation as our FY March22-24e EBIT margin forecasts are c.100bps above...
BURBERRY - SELL | 1800P VS. 1710P (-14%) Some disappointment on short term, but more confident for medium term Once again, momentum in US is quite encouraging Gross margin drove EBIT margin improvement Some pressure on FY22 margin, but more confident on medium term Sell recommendation reiterated
Burberry has released its FY 20/21 figures (ended in March), above consensus and our expectations. The rapid full-price sales rebound and margin progression in the second half of FY20/21 have confirmed the improved attractiveness of the brand; in particular, the strong demand in China, Korea and the US has continued to be the firepower. However, the updated cautious guidance is indicating some weakness in terms of profitability for the near term.
Raising guidance ahead of FY release Last Friday, Burberry issued an unscheduled Trading Update, stating that since December, it has continued to see a strong rebound and now it expects revenue and adjusted operating profit to be ahead of consensus expectations. Comparable store retail sales growth in Q4 FY2021 is expected to be in the range of +28% to +32%. For the full year, the company expects group revenue to decline by -10% to -11% and the adj. operating margin to be in the range of 15.5%-16.5%. The strength in the top line comes from full-price sales and the following countries: China, South Korea and the US. Europe is still weak due to lack of tourists. So far, around 15% of the store base is still closed. We upgrade our estimates by 34% to March-21 and 16% to March-22 We have lifted our numbers following the Trading Update. We now factor in wholesale revenues up MSD in 2H 21 (+6% vs. -14% previously) and have left LFL unchanged (+32% in 4Q and -10% for FY 2021). We have then increased gross margin to 69% (from 63.4%), thanks to the higher contribution of full-price sales, and EBIT to GBP 383m, implying a margin of 16.4% from 13.3% previously), with overall opex around GBP 1.2bn. Also, our tax rate goes from 30% to 25%. This results in an EPS increase of 34% for the year to March-21. We have also lowered our tax rate for the following years (from 30% to 22% for the years to 2023). We raise our TP to GBP21 and keep our Neutral rating unchanged Following the estimate upgrade, we have also increased our TP to GBP 21. Burberry shares are up c. 20% YTD, the strongest in European Soft Luxury (+11%), after Hugo Boss. On consensus numbers, Burberry trades on a 1-year forward PE of 27x, implying a premium of over 45% vs. its historical average of 19x. The next potential catalyst is on 13th May, when Burberry will unveil its March-21 year-end results.
Although the quarterly sales have been considerably impacted by the second wave of lockdowns and the group’s own decision to reduce markdowns, the high single-digit full-price sales growth and increased contribution in leather and outerwear categories have shown that the group is continuing to progress with its strategic priorities.
Burberry has reported its H1 21 figures and both the top line and profitability are ahead of consensus and its previous guidance. Despite good Q2 21 improvements and a continued positive trend in October, the group warns that the second wave of lockdowns and the group’s strategy to reduce markdowns may weigh on the group’s business in the second half. However, we expect the increased brand awareness of Burberry in China could help the group to mitigate the second wave pressure in EMEIA and make it better positioned for a recovery in the mid-term.
BURBERRY - SELL vs. NEUTRAL | 1640p vs. 1580p (+2%) Recommendation downgraded to sell. Poor product and channel mix Retail sales down almost 50% in Q1 Not optimal product and channel mix Despite significant savings, EFY21 EBIT margin down 220bp Sell recommendation after recent rally
As expected, the group’s business in the first quarter has been heavily impacted by the pandemic-led store closures, especially in EMEIA and the Americas. Although the sales recovery in Mainland China was encouraging, the worldwide shrinking tourist flows and the reduction in foot traffic in reopened stores have led the group to provide a very cautious outlook for Q2 20/21. The group’s greater dependence on travel retail and lower exposure to leather goods are making the group less resilient compared to its peers.
BURBERRY - NEUTRAL | 1550p vs. 1800p (+9%) Some encouraging signs but uncertainty prevails FY March 2020 impacted by exceptional items linked to Covid The LT strategy is going on Costs cutting measures should nor prevent to a margin erosion Neutral recommendation unchanged, FV adjusted
Burberry Group plc Burberry Group plc
Burberry has just released an encouraging year-end trading performance. However, although the slightly better than expected year-end sales have allowed the group to upgrade its FY19/20 revenue guidance, the ongoing political crisis in Hong Kong should continue to weigh on the group’s margin generation.
Burberry has recorded encouraging H1 19/20 figures. Sales and adjusted operating profit were both above consensus expectations, mainly driven by the strong double-digit growth of Riccardo Tisci’s new collections. Although the reassuring H1 figures have allowed the group to maintain FY guidance, the group’s warning about the incremental pressure on the gross margin from the ongoing protests in HK should be taken cautiously.
Sales were up 4% organically, beating the consensus of 2%. Tisci’s first collections are showing positive growth signs but are still too weak to confirm a take-off for Burberry. Guidance was unchanged.
Burberry has reported lacklustre sales in FY18 but in line with expectations. Profits were higher than expected thanks to higher cost savings. The guidance of flat revenue and adjusted profit was maintained for FY2019.
Burberry has reported comparable sales growth below estimates in Q3. Growth has slowed from 3% in H1 to 1% in Q3 due to depressed momentum in America. The debut of Tisci’s collection will be in stores in February which should lift the Q4 performance.
Retail sales were up 2% at CER and flat reported. Comparable wholesale revenue surged by 10% at CER. Better cost control along with phasing operating costs have led to a 36% higher operating profit. We will upgrade our forecasts.
Q1 retail sales increased by 3% at CER and were flat reported. Guidance was unchanged with both revenue and adjusted operating profit stable in the short term.
Burberry has increased its retail sales by 3% at CER but wholesale excluding the beauty business was flat. Operating profit was up 4%. Restructuring actions are progressing with promising first signs. A buy-back programme of £150m was announced along with a cash dividend.
Burberry reported a weak sales performance in the Q3 led by disappointing Christmas trading in the UK. The brand lacks creativity and the creative director is leaving; who will be the successor?
Burberry has reported a modest performance in H1. Revenues were up 4% underlying (+9% reported) to £1,263m. Retail sales were up 5% underlying and 4% organically to £944m, while wholesale (excluding beauty sales) stepped up 1% underlying to £233m. Beauty revenue was up 5% underlying to £77m. Total wholesale revenue grew 2% underlying and 8% reported. By region, sales in Asia Pacific edged up 7% underlying (+12% reported) to £461m. In EMEIA, sales were up 5% underlying to £501m. Sales in the Americas slowed down 2% underlying to £292m. By product, growth was balanced between major categories with accessories, women’s and men’s collections growing by 4% underlying to £467m, £353m and £297m respectively. The adjusted operating margin strengthened by 210bp to 14.6% (50bp due to favourable FX moves). The adjusted operating profit edged up by 17% underlying to £185m (includes a £15m benefit from currency moves). Adjusting items are related to the restructuring programme and the transition of Beauty to Coty. Operating profit stepped up 24% to £127m. Net profit amounted to £93m (+29%). Higher profits have strengthened FCF (more than doubled to £171m). An interim dividend of 11p will be paid (+4.8%). A share buy-back plan of £191m was completed in H1 and will be continued up to £350m in FY2018. Burberry announced a strategic restructuring programme to be rolled out during the next three years.
Burberry continued to improve its pace of growth and moved to positive territory in Q1. Retail sales rose 3% underlying (+13% reported) to £478m, boosted by the recovery in mainland China and the strong momentum in the UK. Revenue was up by a mid single-digit rate in Asia Pacific. In Europe, sales edged up by a single-digit rate. Conditions in the Americas remain challenging where revenues declined by a low single-digit percentage. As regards product categories, growth was led by fashion. Leather goods stepped up by a modest mid-teen rate. The transfer of beauty operations to Coty is moving ahead. For FY2018, the company will focus on the productivity of the current distribution network rather than new footprints. Guidance for FY 2018 adjusted pre-tax profit at constant exchange rates is maintained with expected cost savings of £50m.
The British fashion icon is still experiencing tough market momentum but there was some slight improvement compared to H1. Sales were down 1% underlying in H2 (-4% in H1) to £1,607m. Favourable FX moves raised the reported growth to 14%. The performance was pulled down by depressed wholesale and licensing activities which dropped by respectively 13% (£327m) and 38% (£12m) underlying. Retail revenue was up 3% to £1,268m. Burberry experienced market dynamism in Europe and Asia Pacific; however, the momentum in the Americas is still deteriorating. Sales in Asia edged up 1% underlying to £659m, underpinned by the recovering demand in Mainland China which showed a double-digit growth rate in Q4. The reviving tourism in the UK strengthened sales in Europe by 5% underlying to £536m. In the Americas, revenue declined by 10% underlying to £400m. As regards the product categories, accessories outperformed by a mid single-digit rate to £607m (+4%). Mens and Children collections edged up 2% underlying to respectively £353m and £59m. Women’s collections and Beauty were depressed by 2% and 20% to £468m and £108m respectively. The outlook for the FY2017 results is maintained. For FY2018, no positive contribution of new space is expected for retail, and wholesale is targeted to drop by a mid single-digit rate.
Burberry reported retail sales growth of 4% at CER, reaching £735m (+22% reported), boosted by a strong outperformance in the UK and a promising recovery in Asia. Sales in the home market surged by 40% (on a comparable basis), underpinned by a large inflow of overseas consumers. Other Europe posted a weak performance despite a slight improvement in France. Demand in Mainland China accelerated, showing high single-digit growth, and mitigating the still deteriorated momentum in Hong Kong. In the whole of Asia, comparable sales grew by a low single-digit rate. In the Americas, trading conditions remain challenging as like-for-like sales retreated by a low single-digit rate. Nine months’ sales edged up 10.9% on a reported basis.
Amid the challenging context in Hong Kong and the Americas, Burberry benefited from the weakening British pound in the wake of the Brexit referendum. H1 sales were up 5% at reported FX to reach £1,159m, while underlying sales were down 4%. The retail network outperformed with an 11% surge to £859m. Underlying retail revenue was up 2% and comparable sales were flat yoy. Wholesale slipped 6% to reach £287m. Licensing income was halved to £13m following the expiry of the Japanese Burberry licences. As regards regions, the momentum in Hong Kong and Macau remained unfavourable and pulled down the performance in Asia Pacific to -1% underlying. Comparable sales in Mainland China grew at a mid single-digit rate in the second quarter. Sales in EMEIA surged by 10% (+1% underlying) to £456m boosted by a marked outperformance in the UK. The sales momentum remained unfavourable in the Americas and dropped by 2% and 12% underlying to £280m. Removing the FX impact, almost all product categories experienced tough conditions and turned to negative growth, led by beauty items and clothing for women slipping by 17% and 6% respectively. The children’s product line performed well with 9% underlying growth to reach £49m. Management confirmed that digital activity continued to outperform in H1. The new concept of the straight-to-consumer runway collection was welcomed by consumers which should underpin the company’s performance in the coming years. In FY17, net new space is expected to contribute a low single-digit growth rate to retail revenue, while wholesale is expected to retreat by mid-teen rates at constant FX.
Sales were flat in Q1 16 at £423m. At reported FX, revenue was up 4%. Comparable sales were down 3% and all regions experienced unfavourable momentum. In Asia, the company is still facing a tough backdrop in Hong Kong and Macau which posted a double-digit rate decline in comparable sales. In Japan, the performance was hit by weaker tourism flows which was partly offset by the strengthening in domestic demand. The geopolitical uncertainties have depressed the luxury demand of travellers in Europe and sales have dropped significantly. In the home market, the strong momentum experienced in the last few weeks has been behind the market’s performance with mid single-digit comparable growth. Domestic demand remained strong in the Americas while travelling customers’ spending was down. The digital platform helped to pull the performance up as mobile delivered most of the growth, accounting for c.60% of traffic to the website. Currently, Burberry has 214 retail stores, 213 concessions, 60 outlets and 58 franchise stores.
Burberry faced a challenging year in 2015 due to the warm weather and slumping demand worldwide. In H2, sales decreased by 2% (1% underlying) to £1,410m. The company’s performance was pulled down in Q4 with sales down 5%. Hong Kong and Macau continued to deliver unfavourable sales momentum (-20% lfl in Hong Kong). The other markets posted poor growth of 1% on average due to the lesser number of travelling luxury customers in Europe and the uneven demand in the Americas. Asia Pacific posted flat underlying sales of £556m, compared to £463m for EMEIA (+0.9%) and £375m for the Americas (-0.8%). The retail network posted a 2% lfl decline (flat underlying) of £1,064m. Wholesale was down by 1% to £330m. Royalties came to £16m, i.e. a drop of 50%. Among the segments, children and beauty goods outperformed with respective growth of 22% and 13%. Fashion clothing dropped by 3%. Digital sales maintained a good performance. In the last six months, five new mainline stores were opened while eight were closed. FY15 sales retreated by 0.3% to £2,515m.
The British luxury icon announced underlying Q3 retail revenue up by 1% to £603m. On a like-for-like basis, the comparable sales remained flat, i.e. an improvement compared to the 4% drop in Q2. Out of Hong Kong and Macau, sales grew by 3% backed by the recovery of the demand in mainland China. By region, the EMEIA outperformed uwith a mid single-digit growth rate driven by a strong performance in Italy, Germany and Spain. The Asia Pacific growth improved from Q2 but remained down in the mid single digits. Japan pursued its strong performance with around 50% comparable sales growth. The Americas reported a marginal increase. By business stream, accessories outperformed apparel, with strength in small leather goods and scarves. Outerwear was affected by unseasonably warm weather. The openings included two mainline stores and three concessions while one mainline store and three other concessions were closed.
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