The Burberry share price has dipped on the back of the third-quarter update. The fashion house confirmed that comparable sales increased by 3%, topping forecasts. The sales growth was driven by full price sales. It is not uncommon for firms to lower prices in a bid to get stock out the door, so it is encouraging to see that Burberry’s revenue rise was largely fuelled by full price sales.
Outlook could weigh on Burberry share price
Burberry cautioned that full-year total revenue will grow by a single digit percentage, while the previous guidance was for growth to be broadly stable. It seems the high-end fashion house is a little less certain about the future, so that is likely to weigh on the share price.
The unrest in Hong Kong continues to be an issue for Burberry, as the group revealed ‘lower levels of markdown inventory available for sale’. Mainland China posted sales growth in the mid-teens, while Hong Kong sales growth halved. In light of the coronavirus fears in China, the Asian division is likely to suffer in the coming months. Continental Europe continues to benefit from tourist spending, while low-single digit sales growth was registered in the US.
In November, the Burberry share price underwent a jump in volatility on the back of the solid first-half numbers. On a pro-forma basis, revenue ticked up by 5% to £1.28 billion, and profit before tax increased by 8% to £189 million. Comparable store sales in the timeframe rose by 4%. By-and-large the company performed well in Asia as sales in Japan, mainland China, plus South Korea were solid. The political unrest in Hong Kong was a factor though. The figures from Europe plus the US painted a picture of a more subdued consumer climate. The fashion house bumped up the interim dividend by 3%, and the full outlook was maintained.
Middle-ground retailers feeling the pinch
The retail sector is interesting at the moment, as high-end brands like Burberry and LVMH are performing well, and so are the low-cost brands like Primark – which is a part of Associated British Foods, but some of the brands that occupy the middle ground are coming under pressure. Supergroup is a fine example. It would appear the so-called ‘squeezed middle’ are seeking out bargains, hence why goods in the middle of the price range are feeling the pinch. The very wealthy, who purchase high-end brands like Burberry are not feeling the pain, which is why the fashion house is holding up well. The domestic market in the UK and the US might not be overly lucrative, but wealthy tourists, typically from Asia are often picking up the slack.
The latest retail sales figures form the UK were very disappointing as they showed a 0.6% decline in December – which included the all-important Christmas period. Consumer sentiment was likely to have been impacted by the political uncertainty of the UK general election, not to mention the ongoing Brexit situation Some fashion houses could be held back by the lack of clarity in relation to UK’s impending departure from the EU, but Burberry’s more affluent customer base is less likely to be caught up in the situation.
The Burberry share price hit a five-month high in December, and in fact it wasn’t too far away from the all-time high that was set in mid-July 2019.
Disclaimer: 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.