Burberry’s [BRBY] share price has looked resilient this year, but the company hasn’t managed to regain its 2020 opening price of 2,224p. In fact, its best day of trading since the March market slump saw Burberry’s share price reach an intraday high of 1,732p before closing at 1,721p on 5 June. Although an improvement on its March low, this was still down 26.8% year to date. Now, as the company prepares to release its interim results on 12 November, how could earnings affect Burberry’s share price?
Stock drops alongside sales
When Burberry released its Q1 trading update for fiscal year 2021 on 15 July, it announced revenues of £257m, a significant 48% drop from the same period a year prior when the company made £498m. The news caused Burberry’s share price to close 5.6% lower than the previous day.
Burberry's Q1 revenue - a 48% YoY drop
The company blamed the considerable shortfall on the coronavirus pandemic, with lockdown measures forcing stores to close. However, the company also said that, despite the quarterly loss, it saw “progressive month-on-month improvement through the period as stores reopened”. While comparable sales were down 45% for the quarter, they were down just 20% in June as lockdown measures eased. Evidence of further progress in this area could see Burberry’s share price jump post-earnings.
“In Q1, sales were severely impacted by the drop in luxury demand from COVID-19 and we expect it will take time to return to pre-crisis levels with the resumption of overseas travel. We are encouraged by the improving trends in all regions and the promising exit rate for June,” said CEO Marco Gobbetti.
“In Q1, sales were severely impacted by the drop in luxury demand from COVID-19 and we expect it will take time to return to pre-crisis levels with the resumption of overseas travel. We are encouraged by the improving trends in all regions and the promising exit rate for June” - Burberry CEO Marco Gobbetti
Although Burberry didn’t release full-year guidance “due to the macroeconomic and global health uncertainty,” it did provide an indication of what to expect in the second quarter and interim results.
“Based on our comp retail sales performance in June 2020 (-20%), we expect Q2 2021 (ended September 2020) to decline by 15% to 20%. In wholesale, we are collaborating with our partners to protect the brand and as a result, anticipate H1 2021 sales declining around 40% to 50%,” the company noted.
As noted by Roland Head in The Motley Fool, Burberry’s sales for the three months to the end of June were seriously affected by COVID-19, dropping by 45% during the period. However, the company also noted that sales in China had grown in the first quarter. “By June, sales were said to be ahead of January levels,” Head noted.
Will Burberry’s share price come back in vogue?
“City analysts following the firm expect a robust recovery in earnings next year, although profits will still likely be around 75% of their pre-coronavirus level,” Kevin Godbold wrote, also in The Motley Fool.
“Nevertheless, when viewed as a long-term investment, I reckon the coronavirus dip is a potentially short-term setback. Meanwhile, with the share price near 1,584p, the forward-looking earnings multiple for the trading year to March 2022 is just above 22. I think that’s fair given the quality of the enterprise.”
“City analysts following the firm expect a robust recovery in earnings next year, although profits will still likely be around 75% of their pre-coronavirus level” - Kevin Godbold
With a more bearish outlook, UBS analyst Zuzanna Pusz raised the firm’s target on Burberry’s share price to 1,116p from 1,015p in October, while maintaining a Sell rating, according to The Fly.
“Burberry’s financial situation looks bulletproof to me,” Head wrote.
“Although the shares look pricey on 31 times 2020/21 forecast earnings, this business has historically generated high-profit margins and regular dividend growth. I believe now could be a good time to add this FTSE 100 dividend share to a long-term portfolio,” he added.
The consensus among 16 Wall Street analysts polled on MarketBeat was to Hold as Burberry’s share price currently stands. This was the rating given by nine analysts, while three rated it a Sell and four a Buy.
The average 12-month target for Burberry’s share price is 1,588.64p — sitting between a high estimate of 1,900p and a low of 1,015p. This would represent a 1.5% decrease from Burberry’s share price as of close on 10 November.
|PE ratio (TTM)||53.67|
|Quarterly Revenue Growth (YoY)||-9.9%|
Burberry share price vitals, Yahoo Finance, 11 November 2020