Can a “Britishness” focus help Burberry’s share price?

Burberry’s interim results showed revenue and profits were up in the first six months of the year. With CEO Jonathan Ackeroyd hoping to turn Burberry into a £5bn brand in the long-term, the luxury fashion retailer will tap into its heritage to drive sales under new designer Daniel Lee.

Burberry [BRBY.L] posted a rise in both revenues and profit in interim results published on 17 November. Along with the strong earnings update, the luxury fashion retailer upped its medium-term guidance and promised a focus on “Britishness” to drive sales.

Revenue rose 5% year-on-year to £1.35bn for the 26 weeks ending 1 October. Adjusted operating profit was up 6% year-on-year at £238m.

Burberry said that sales in continental Europe had outperformed, with strong performance in France and Spain. Sales in the UK were in line with the average. Chief financial officer Julie Brown said that shoppers from the US, Middle East and Asia were choosing Paris and Milan over London as their shopping destination of choice, as they can reclaim sales tax on higher value purchases.

Burberry maintained its guidance for the end of 2024 financial year of single digit growth and margins of around 20%. Income seekers were rewarded with a 16.5p dividend, up from 11.5p in the same period the previous year.

Chief executive Jonathan Akeroyd said Burberry would now target £4bn in sales within three to five years, and £5bn in annual sales over the long-term.

What’s happening with Burberry’s share price?

Burberry’s share price rose 5% by the end of last week as shareholders welcomed the improved outlook and revised strategy. Year-to-date, Burberry’s stock has climbed 15.43%, closing Friday 18 November at 2,098p.

Since hitting a year low of 1,473p 10 May, Burberry’s share price has gained over 40%, buoyed by strong full-year results published on 18 May that showed a substantial jump in both revenue and profit.

Burberry refocuses on ‘Britishness’

A key strategic pillar is Burberry’s desire to refocus on “Britishness”.

Akeroyd name Daniel Lee as Burberry’s new chief creative officer in September, replacing Riccardo Tisci, who left the fashion house after a five year stint. In the interim results, Burberry said it would focus on products “rooted in the heritage of British design and craftsmanship” and increase its visibility within the UK. Lee’s debut collection will be unveiled at London Fashion Week in February next year.

Stifel analyst Rogerio Fujimori said in a September note that the change in designer should help Burberry stand out in the handbag and footwear categories, given Lee’s experience in these areas. Fujimori added that Burberry had “struggled to make its mark in these categories and create high profile iconic products''.

Over the long-term, Akeroyd hopes to hit £5bn in annual sales. The former Versace boss, who has been in charge since March, plans to do this by doubling the sales of leather goods, shoes and women’s ready-to-wear items, and increasing outerwear sales by 1.5x. In the second quarter, leather goods sales were up 11% year-on-year, with handbag sales lifted by the bestselling Lola bag.

“£5bn of annual sales will drive significant operating leverage, increasing our operating margin above 20%,” Akeroyd told analysts.

RBC ups price target on Burberry

“Sensible” was how RBC analysts described Akeroyd’s targets in a note to investors following the results, adding that the areas of focus were broadly in line with expectations.

"We have more belief in [the] £4bn revenue target, and are less confident on EBIT margins significantly above 20%, particularly in the absence of any meaningful gross margin support," said the analysts.

The Canadian bank upped its target price on the luxury brand from 1,800p to 2,070p and reiterated its 'sector perform' rating on the stock. The analysts said that they wanted to see reaction to Daniel Lee’s first collection next year and how profit evolves before reevaluating their thesis.

Of the 25 analysts polled by Refinitiv, 19 have a ‘hold' rating on Burberry’s stock. The stock has a median price target of 2,000p, representing a 2.1% downside on Friday’s close.