Earlier this month HERE, I excitedly wrote that prospects for shares in Burberry (BRBY) were strong as ‘comparable store retail sales in Q4 FY2021 are expected to be in the range of +28% to +32% higher than the same period last year’. And the reason (again) for this progress despite a world of shutdowns has been a substantial rise in demand for its luxury goods in China. That is why Burberry shares were pushing above a £21 share price at the time of my thoughts above. So why did the shares dump below a £19 share price on Thursday and Friday despite a broadly workable stock market in the last few weeks? Well that would be a few new thoughts from both the UK (and others) and naturally China.
The last ten days or so have seen lots of international discussion about the Chinese government’s treatment of the Xinjiang's Uighur minority. The impact of all of this for the UK by Friday had included a decision by the Chinese government to implement sanctions on nine British politicians and some lawyers and academics, following some similar actions by the EU and the US by China. However there are other impacts too. As much of the international criticism focused on the production of Xinjiang cotton, users of other cotton sources have been heavily criticised. To this end the Chinese giant Tencent - already under its own criticism and hassle from the Chinese government - played an internal political game by halting its own partnership with Burberry. In addition, brand ambassadors Zhou Dongyu and Song Weilong - both popular actress types - announced they would no longer work with the luxury company. That does not sound like good news for Burberry’s hopes of increasing its sales to Chinese chavs, hence why the shares fell back.
So does Burberry have a problem? I doubt it really. It will lose some new sales in China but - given widespread criticisms of other names such as Nike, Adidas, H&M and LVMH - either Chinese consumers do not buy many of their favourite top international brands or ultimately they go back to them. As with trade matters generally, having a trade war is a big lose-lose as we have seen in previous times. Even China understands that. This is why getting too negative about all of this - in my view - is wrong.
Burberry is probably glad that its numbers - and detailed questions and comments - are due in May. Fortunately too in a world of an improving economic backdrop, prospects for luxury names are generally only going to get even stronger (at least this side of any future market crash). This is why I remain optimistic and want to buy some more shares at sub a £19 share price. I may not own any Burberry items but I still do the shares. Give it a bit more time and it will be a bit more chavtastic again even in China.
Filed under: Burberry, Julie Meyer, Yu Group, Time Out Group, LoopUp, Carnival, Imperial Brands
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