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Can a new CEO turn around Burberry’s share price?

Like an unloved pullover in an end of season sale, Burberry’s [BRBY] share price has had its price repeatedly slashed over the summer. The reason for the stock finding itself in the bargain bin was the 28 June announcement that CEO Marco Gobbetti was stepping down.

Gobbetti was widely credited with protecting Burberry from the worst of the pandemic’s impact, with a focus on fewer discounts, more full-priced sales and improving its presence in China. All strategies that helped it withstand the worst of the pandemic. Rumours of takeover and customers moving from luxury purchases to experiences are notable headwinds.

Since Gobbetti said he’d be off at the end of the year, Burberry’s share price has seen a near 16% decline (through 22 October), with investors seemingly spooked at the departure of the talismanic CEO.

At the time of the departure, AJ Bell investment director Russ Mould commented:

“The best CEOs set tone and culture and allocate capital, both human and financial. Investors clearly feel Mr Gobbetti has done well in his tenure, especially given the additional challenges posed by the pandemic and global downturn.”

 

 

 


Burberry’s share price could see a boost from Versace hire

Hoping to stitch up the ailing Burberry share price, the management team have turned to former Versace and Alexander McQueen boss Jonathan Akeroyd.

“Jonathan is an experienced leader with a strong track record in building global luxury fashion brands and driving profitable growth,” said Burberry Chair Gerry Murphy in a statement.

Investors seem keen, with Burberry’s share price up over 3% since Akeroyd appointment was announced on 20 October. Akeroyd will start as Burberry’s chief executive officer and executive director on Wednesday, effective 1 April 2022. Gobbetti will step down at the end of December.

Yet with that April start date, the new boss may have a tough time implementing his vision for the company in the short term. Burberry was in the middle of a multi-year turnaround when Gobbetti jumped ship. Integrating a new CEO mid-strategy pivot could mean investors won’t see an updated strategy until late 2022. At least that’s the view of analysts at UBS.

"The timing of his start date suggests Burberry is unlikely to present an updated strategy until Q3/Q4 2022 at the earliest, thus delaying its turnaround even further," UBS analysts said in a note.

Still, the new CEO has a track record of turning around luxury clothing retailers. Berenberg analysts point to Akeroyd having "lots of luxury CEO experience of leading houses - as well as brand turnarounds". At Versace Akeroyd led a five year growth strategy and oversaw the sale of the Italian fashion house to Capri Holdings in 2018.

“The timing of [Akeroyd's] start date suggests Burberry is unlikely to present an updated strategy until Q3/Q4 2022 at the earliest” - UBS Analysts

 

 


Burberry’s business starts to return

With Burberry’s share price still down, now could be the time to pick up what could be a must-have stock next year. And while the long-term nature of a turnaround may mean that Burberry may not see a markedly bullish outlook for some time, things are improving.

Fashion houses took a kicking last year. The pandemic - and subsequent lockdown - meant people eschewed luxury fashion and brought more leisurewear - that is clothes that were better suited to wear around the house than to be seen in.

Now with most restrictions lifted, growth has returned to the market. Burberry recorded retail revenue of £479m in the 13 weeks up until June 26, up from £256m in the same period last year. Encouragingly, comparable store sales were up 90% year-on-year.

While that’s still down from the £498m in sales seen in the same period in pre-pandemic 2019, it’s also not a million miles away from that figure either. Digital continued to be a strong performer for Burberry, with online “full-price sales more than doubled” compared to the same quarter last year, according to a press release accompanying the earnings.

£479million

Burberry's retail revenue in the 13 weeks to June 26 was up from £256 million in the same period last year

 

“FY22 guidance remains unchanged except wholesale, which is now expected to increase by approximately 60% YoY in H1 due to a stronger order book and FX that we now expect to be a £114m headwind on sales and £40m headwind on adjusted operating profit for FY22 based on 25 June spot rates. The medium-term guidance for high single-digit top-line growth and meaningful margin improvement remains firmly on track,” Burberry said in its earnings release.

Investors will get more insight into how Burberry is performing when it updates the market with second-quarter results in November.

Among analysts polled on Yahoo Finance, Burberry’s share price carries a 2,153.36p price target - this would see investors sewing up a 13.6% upside on Friday’s close of 1,896p. 

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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