Shares in British luxury fashion house Burberry (BRBY) have recently fallen back noticeably, so why the fall? Well the company has announced ‘that Marco Gobbetti has notified the Board of his intention to step down as Chief Executive Officer and leave the Company at the end of 2021’. So why has he decided to move on, around four years since he replaced the wonderfully named Christopher Bailey as CEO?
Well the first observation is that he has a new job coming up that will allow him to ‘return to Italy and be closer to his family’, which of course is fully understandable and fully reasonable especially after ‘20 years abroad’. And at least he will remain at the company until the end of the calendar year, working with the chairman ‘to provide full support to the executive leadership team on an orderly transition’. This stuff happens and certainly there is no huge fundamental problem and there is the usual ramble about the CEO being ‘committed to supporting (Burberry)...through the transition and I have every confidence that the creativity and strong values that define Burberry will continue to drive the Company's future success’.
But let’s not forget that a few months ago he was highly excited about the future, as I noted HERE. Whilst there are certainly challenges for the group from the Chinese government’s treatment of the Xinjiang’s Uighur minority, sales and profit growth in east Asia has been dramatically strong over recent years. And beyond the hope that more rich Chinese people will buy its products, trends in Europe and the US for the group have been pretty good too even if sales via stores based in airports have unsurprisingly been impacted. My personal view is that if the CEO thinks he wants to exit when the story cannot get any stronger, then he might find he could have chosen a better time. Maybe his new opportunity is both nicely located and very remunerative.
Frankly from a Burberry perspective I would be more worried if head designer Riccardo Tisci made a similar comment. Perhaps that is a concern that is impacting the shares which in any case - as I noted in my previous article - are hardly super cheap and were kicking around my target price with a c. x20 forward EV/ebit multiple and only a 2%+ dividend yield. I still see the scope for a return to a £22+ share price over the next year and therefore will continue holding on. Unless a potential CEO perceives a load of issues with China, frankly it would be a smart position to take. Maybe it needs another Christopher Bailey there?! Sub 18 quid remains my personal ‘add more’ price for a share I remain a holder of today. Hardly chavtastic but hardly a shocker either.
Filed under: Burberry, Eden Research, Verditek, Catenae Innovation, Ariana, Bluebird Merchant Ventures
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