I like to think I have a little bit of knowledge about a wide range of matters but if I ever offer fashion advice, then I really think you should ignore it. Fortunately my share-based love for Burberry (BRBY) has always been centred on those twin mega themes of the internet and China, rather than the new looks being developed by Riccardo Tisci and his team…
I might be a long way from the typical Burberry buyer, but I can thematically get my head around how a company that punches above its weight in terms of its social media programme AND exposure to the Chinese market, should be loved up by the market. Back in November I summarised all this into a positive view that concluded 'all I know is - with a fair wind from a global trade and macro perspective - this one is going back to 20 quid plus' – and with a ten per cent odd share price bounce...here we are...and quite a bit more.
Actually, at first glance, the latest numbers are hardly epic. A 4% comparable first quarter sales growth level hardly blows the socks off but it is better than expected after Burberry had spent much of the last year keeping people's expectations under control. Most importantly, trading was strong in China (mid-teens growth), which already sits in a region which accounts for over a third of Burberry's sales. It is always nice to have material exposure to a fast-growing market (unless it goes into reverse...naturally!). The maintenance of the dull full-year 2020 (to January 2020) feels overly cautious but it is never a bad thing to under-promise and over-deliver in my book. As for the new threads of young Riccardo ('we surprised and excited consumers with our monthly B-Series drops and product capsules' – no I do not understand some of the terminology either), it can only be a good thing that the proportion of new product was around 50% of the mainline offer compared to 10-15% in March, and again perhaps indicates that Burberry will actually upgrade later this year. However, the statistic I was most impressed by was the double-digit percentage gains in its social media traction across Instagram and WeChat. In today's retail world having such outlets is all-critical and in terms of followers the company can look bigger luxury goods names - on even bigger valuations - squarely in the face.
So exciting times. But for those who know me well, you will guess such excitements only impress me so far. Whilst the first quarter numbers do not have a full range of useful metrics to help make quality investment decisions, the lowish rating versus peers and the general luxury space I rambled on about in November has gone. You can still make a relative value story but the reliance on a greater fool to keep buying the shares in the broader world is building as an influence, even taking into account that China and social media importance for retail will just continue to grow at the margin. In short - and I will after a suitable delay post publication - time to take a big top-slice out of my Burberry shareholding. I might even treat myself with some of the profits...to investing into another share elsewhere. Let's face it, I am never going to be a Burberry retail shopper online or offline.
Filed under: Burberry, ShareProphets Radio, Union Jack Oil, CyanConnode, Watches of Switzerland
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