Burberry (LON:BRBY) shares are reflecting palpable relief this morning after an unexpectedly solid advance in first-quarter comparable sales growth and the most promising underlying trend in China for at least three years.
Accessories and a new principal
Some investors may also be taking the group’s good news as an early win at the hands of just-installed CEO Marco Gobbetti. He has—officially—been killing time, for contractual reasons, in a lesser role based in the Asia-Pacific region since January. Any compounded good sentiment will be welcomed by management given growing risks that increasingly fervent hopes about the former LVMH (PA:LVMH) executive might be exceeding near-term possibilities. Regardless of which managerial factor the firming sales can be attributed to, there’s little doubt that a 4% rise in like-for like sales against forecasts averaging 2.3% represents the best sign of a potential group sales rebound for several quarters.
Gobbetti fans may not be only ones feeling vindicated this morning. Burberry’s newest ranges and leather goods were the stand-out products in the first quarter, reducing concerns among some investors about potential C-Suite tensions following the sideways progression of former CEO Christopher Bailey to a full-time creative leadership role. Leather spans all product ranges and accessories, Burberry’s highest-revenue category, which was also bolstered by the £1,795-£2,495 DK88 handbag range. Revamped management has had, overall, a fruitful first quarter, though the CEO has taken care to remind in his first printed official comments, which name-check Bailey that he’s “mindful of the work still to do”.
Americas still cupped
The first chunk of work that has been cut out for him will be to fix the Americas. There, another decline followed those in the second half of the previous financial year, albeit weakness might be moderating given the “low single-digit” fall compared to the 10% wholesale/retail slide in 2016/17. Relative improvement might be attributable to the failure of the US dollar to hold on levels marked last November that were its highest for over a decade and which Burberry said encouraged US buyers to shop overseas. Seen another way though, the muted impact of that pattern on rivals thus far hasn’t been lost of investors. Reduction of such pressures could just as easily benefit Burberry competitors anew, underlining that its Americas strategy still cries out for structural changes.
China stars
A potential return of strength in mainland China however would be the group’s chief milestone under its new management structure. On the surface the mid-teens percentage growth there in Q1 could still be seen as due to seasonal trends or other factors beyond the group’s control. The rise looks more sustainable, however, if doubled ‘digital’ China revenues are factored in. The buzzword has been a pointed management outlook focus for the last 18 months.
Burberry’s more robust showing overall is underpinned by the group’s ‘on-track’ rating for the cost savings programme that eyes £100m pa by 2019, retention of full-year profit guidance, and even reduced negative currency impact (£25m vs. £30m before). All in, the group looks to have slightly more than grown into a relatively modest forward rating of 19 times next year’s earnings in the first quarter.
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient.
Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.