Investment Thesis
- The rejuvenation of Burberry under a new creative director is underway, in our view.
- Leveraged to increasing consumer consumption in Asia (China).
- Leveraged to tourism flows (international travel) as consumers seek out experiences.
- Building a credible offering in the important category of leather goods.
- Improving cash flow generation and a progressive dividend policy.
- Strong balance sheet, which provides the Company flexibility.
- Capital management initiatives (e.g., Share Buyback).
Key Risks
- Execution risk with Burberry turnaround under new management team.
- Fails to build a credible offering in the Leather Goods segment.
- Increased competition from existing players and new emerging brands.
- Value destructive acquisition of brand(s).
- Macroeconomic conditions deteriorate globally, impacting consumer spending and less tourism movements (i.e. travelers overseas).
- Geopolitical tensions among regions restricting funds & tourists flow or a breakout of health epidemic impacting tourists flow in Europe / Asia.
- Significant change at the senior management level (Creative Director).
Strong Margin accretion – driven by full sales price sales and cost out initatives
Management’s strategy to exit mainline and digital markdowns and the deliberate tight management of outlet business resulted in a significant shift towards full-price sales (within comparable store sales growth of +37% over pcp, full price sales advanced +49%, growing +121% and +10% across 1Q and 2Q, respectively), which underpinned an improvement of +130bps (at CER) in gross margin to 69.3% despite significant pressures from Brexit duties and channel mix. BRBY saw GBP 20m in cost savings (achieved GBP 55m of annualized savings, bringing cumulative savings to GBP 205m and providing a completely restructured cost base), delivering an improvement of +11.2% (at CER) in adjusted operating margin to 16.2%.
Company Profile
Burberry Group Plc (BRBY), listed on the London Stock Exchange, is a global luxury brand with a British heritage. The Company designs and sources apparel and accessories, which it distributes via retail, digital, wholesale and licensing channels globally.
(Source: BanyanTree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
