Stock of the day 13/10/2015 – Burberry Group PLC

It’s hardly been a luxury year for Burberry; can the company turn things around with its half year results on Thursday?

Things were looking good at the start of the year; after opening 2015 at £16.49 Burberry surged to an all-time high of £19.30 by the beginning of March following a third quarter update in January that contained an 8% rise in comparable sales despite protests in Hong Kong, a region that accounts for one tenth of its group sales.

That March high was to become a distant memory for Burberry, however; by the end of the month the stock had fallen to £17, and though the company’s second half update in April lifted Burberry back to £18.50 (with a 9% jump in total revenue to £1.4 billion) it soon resumed its decline.


(Source: IT-Finance.com 13/10/2015)

Its full year results towards the end of May exacerbated matters, causing a 5% fall as stock tumbled beneath £17 for the first time since the end of March. This decline was inspired by a £40 million downgrade in its full year 2015/16 profits forecast due to unfavourable currency headwinds, news that overshadowed the company’s 11% rise in revenue o £2.5 billion alongside its 7% increase in underlying pre-tax profit to £456 million for 2014/15.

Its first quarter report in July pushed the stock lower, as like for like sales saw 6% growth to £4.07 million year-on-year compared to the 9% jump seen in Q1 2014. The Chinese-chaos of August caused even more headaches for Burberry, with the stock eventually hitting a 26 month low of £13.09 by the end of September. The market-wide rise in the first fortnight of October has lifted Burberry away from those lows, however, and the stock is at a current trading price of £14.39 (IT-Finance.com, 13/10/2015).

Analysts expecting the stock to be hurt by the China-fallout especially considering the company had already been seeing a sales slowdown in Hong Kong before the price-eroding run kicked off by Black Monday. This means groups sales are forecast to increase by an initially healthy-looking 5% to £1.2 billion year-on-year; however that compares with a 14% rise this time last year, with the looming spectre of another fall in its d full year profit guidance. Burberry’s post-release performance, then, may end up being dictated by how well the company convinces investors that it has its China-inspired slowdown under control.

Burberry has a consensus rating of ‘Hold’ with an average target price of £17.48.