Analysing the results of Burberry's company results.
Burberry announces share buyback of £150m as profits rise in ‘year of transition’
- Luxury fashion house’s transition strategy making solid progress
- Same store comparable sales up 3% year on year, with improved operating margins
- The Share Centre recommends Burberry as a medium risk ‘hold’ for investors
As Burberry updates the market Helal Miah, investment research analyst at The Share Centre, comments on what it means for investors:
Burberry’s transition and turnaround was made more evident in the latest set of full year results as the luxury brand updated the market this morning. The group announced that its revenues fell by 1% to £2.7bn, but the non-core Beauty wholesale business revenues grew by 2% and increased by 3% on a comparable same store basis.
There was better news on operating profits which climbed by 4% and the adjusted operating margins headed up to 17.1% from 16.6% the previous year. These results closely reflect the new management strategy over the last year which has placed emphasis on efficiencies and store rationalisation rather than increasing the floorspace and store quantity. Indeed, there was a net of 20 store closures while total cumulative cost savings amounted to £64m.
The transition includes improved product offerings to the customer including a more complete wardrobe offer and improved collections to attract new customers. Burberry recently acquired an Italian and leather goods manufacturer which will create a centre of excellence for leather goods and will enable a greater control over cost, quality, and supply assurances. Meanwhile the Beauty partnership has been successfully transferred to Coty as planned and the online platform has also been refreshed with more editorial content with the intent to increase customer engagement.
In its key markets of the Asia Pacific, the group experienced high single digit growth in China with continued improvements in Hong Kong, while challenges were faced Korea. In Europe, sales fell marginally but the UK enjoyed reasonable growth despite the tough comparators of an excellent previous year boosted by the weak sterling. Moreover, North America saw low single digit growth while the Middle East was challenged by the macro-economic environment.
Management describe that the group is still in the early stages of transition and strategies implemented so far have been well executed. There have been a number of new senior hires including a new Chief Creative Officer and Chief Commercial Officer. With the new appointments, the CEO Mario Gobbetti expects to continue with the group’s transition to focus on internal improvements before looking to expand stores again. It has done an excellent job so far and investors are in the hope that the wider macro-economic environment will remain supportive too.
Management have kept its 2019 and 2020 outlook unchanged from its update in November. Investors should be interested to note that this year’s good performance and strong cash generation has led to a new share back programme of £150m.
The shares have improved well along with the recovery in the Asian markets and this is integral to future prospects. Over the longer term we expect these markets to remain supportive for the group but there will undoubtedly be some cyclical challenges along the way. Considering the share price recovery and forward price earnings multiples close to 24x, we continue with our medium risk Hold recommendation for investors looking for growth. However, we would not discourage investors from picking up some shares on any dips.
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