It's time to have a look again at Burberry (BRBY), shares in which I have loved for a number of years (even if I have never bought one of its products personally). But the shares have been a bit volatile so far this year, as I noted the other week with the surprise decision by the company’s CEO to leave. So whilst further insights on who may be the next CEO is more of an issue for later in the year, why are the company’s shares recently down given its ‘excellent progress’ comment about year-to-date sales?
The latest good news from the outgoing CEO was that there was ‘strong growth across our strategic categories’, citing the leather goods and outerwear areas. Certainly, it is pretty positive to be able to say that comparable store sales rose 90% year-on-year during the first quarter, and even 1% above the level seen two years ago. Pretty impressive stuff giving travel sales in fancy airport locations and related were down from 30% of sales back in 2019 to just 7% now. Of course sales and profits can easily be very different things, but it is not changing its forward views on the latter. Few companies do this after the first quarter but, listening to everything it said earlier today, chances of a profit upgrade later this year remains a possibility in my opinion.
There are a combination of positive comments about America (‘full-price comparable store sales more than double’) and in east Asia (‘mainland China increased more than 55% and Korea more than 90%’). Generally stores are reopening too - even if unsurprisingly more and more rich youngsters buy online - even if ‘35% are still operating on reduced hours and business in Europe and much of Asia is still heavily impacted by the significant decline of international tourist traffic’. Far more important - as shown by the recent ‘presentation in the striking Millennium Mills at the Royal Victoria Docks in East London’ - multiple elements of its fashion market are progressing well. In terms of fears about potential crumbling by Chinese purchasers (as I mentioned at the above article and also earlier this year HERE), it is all evolving on other angles. It talks about ‘extended supply chain to 46% by 2030 and reaching net zero by 2040, 10 years ahead of the 1.5°C pathway set out in the Paris Agreement’, which it seems much more worried about than potential issues in west China. Funny that...but let’s face it, any company around the world selling materially to China often will cite a bunch of different underlying opinions.
In short though, I thought the Q1 update generally read well and the scope for a sub x20 EV:EBIT multiple in the company’s year to the end of March 2022 is very plausible. The shares might be down (and slightly shy of a twenty quid share price) but my adding levels still remain below £18 and then sub £16 share prices. Burberry - with its very strong balance sheet and long-term history - is a nice combination of continuing UK/European/US expensive buyers with an emerging demand from the rising number of rich Chinese people, a strategy that is not going to go away in the 2020s. One day it would not surprise me if the Chinese try to buy the stock, but you should never invest even moderately for that reason. A good balance sheet, product demand growing and the rise and rise of the Chinese chav concept means that it won’t struggle to hire a new CEO, especially as its leading (Italian) fashion designer is no doubt about to be paid a big bonus. That’s why I may not get my credit card out to buy a product in its stores or online, but I am very happy holding the shares. Keep on BUYing if you do not hold any yourself. You even get a couple of percent dividend too.
Filed under: Burberry, Parsley Box, FirstGroup, IQGeo, Castillo Copper, TomWinnifrith.com
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