Hopes are high for new collections from Burberry’s star designer, though Hong Kong disruption and China’s slowdown may drag
Britain’s main contender in the global luxury market, Burberry, will release closely watched results for the first half of its 2020 fiscal year on Thursday at 07.00 GMT.
Tough comps
The £8.4bn group made clear in the summer that it expects operating profit progress to be weighted towards the second half, tempering expectations of what it could achieve in H1. Another implied headwind for forthcoming results: strong figures from the comparable stretch in the year before.
Hong Kong, China
On top of Burberry's (LON:BRBY) caution, the faltering economic and geopolitical backdrop in Greater China, a key Burberry region, will also weigh. Increasing turmoil in the Hong Kong hub and some of the slowest mainland growth rates in a generation have weakened the yuan, adding pressure to retail sales that were already softening in step with consumer sentiment. China’s year-on-year retail sales growth is also scheduled to be updated on Thursday. Economists forecast a rise of 7.8% on average in October, the same as the month before. That would compare with volume growth of around 10% in the same month of 2018.
Collections mix, Plan A
Still, a positive response to debut designs by Chief Creative Officer Riccardo Tisci is expected to have underpinned sales. Even so, any growth may be offset by lower-priced inventory from old collections. More broadly, Burberry’s multi-year recovery plan is now in full swing; with the help of a 50% capex hike in the current year. Burberry shares are likely to be sensitive to signs that CEO Marco Gobbetti’s gambit to take the group even further upmarket is taking a bigger toll on present value than expected.
Key forecasts Burberry-compiled unless stated
Other points to watch
Asia (41% of total) – ‘high-single-digit’ growth
Greater China – ‘mid teens’
Europe/UK (36% of total) – static though supported by tourism in Q1
Americas (23% of total) – U.S. up slightly, Canada down
Possible stock price reaction
The shares are up 18% in 2019 though down from a peak gain of 35% in mid-July. They began to recoup in line with the broader market in mid-October. Given tempered expectations, positive surprises in H1 results could easily spark a significant spike higher. On the other hand, the risk is that the challenging economic and geopolitical backdrop in China has taken a higher toll than forecast. In that case, the stock could cede further gains made this year.
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.