New Burberry collection vs. Hong Kong insurrection
Ken Odeluga November 13, 2019 7:43 PM
Hong Kong disruption and China’s slowdown may drag H1 sales
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.
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 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)
- H1 revenue: £1.26bn, up 3.4%
- H1 operating profit: £172.33m, down 0.1%
- H1 pre-tax profit: £174.66m, down 3%
- H1 retail sales £987.4m (Bloomberg’s poll)
- H1/Q2 Burberry Brand like-for-like sales: +4%/+4.6%
Other points to watch
- Store space: fell 2% in Q1, lower space is seen as key for higher profits in H2
- Recent performance by region: (Burberry seldom reports exact regional growth data)
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 on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. 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 warranty 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, author does not guarantee its accuracy or completeness, nor does 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.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.