By Anna Peel. Originally published at ValueWalk.
A commentary from Gemma Boothroyd, Analyst at Freetrade, on Burberry Group plc (LON:BRBY)’s results announcement today.
Burberry Cancels Price Cut
To boost its prestige, Burberry cancelled price cuts on mainline items.
New CEO Jonathan Akeroyd will be hoping that by winding up markdowns, the retailer will re-establish its exclusivity. But the only way that strategy pays off is if countries with high spending power play ball.
Enter: China, which has long been Burberry’s crown jewel.
Akeroyd’s ability to hit the ground running heavily depends on demand from the Chinese market. Today’s results show the demand is there, the problem is, China’s Covid policies are out of his control.
With some Shanghai residents now in their sixth week of lockdown, spending in the luxury hub is inevitably muted. That means Burberry’s cut off, and it’s feeling the heat, with March sales taking a tumble.
Zooming out further, the full year wasn’t terrific either. 21% revenue growth on 2020/21 isn’t much of a bounceback given lockdowns plagued nearly all operating regions the year prior.
But Akeroyd only started in March, so the big question today is about what’s next.
His best bet is to double down on what has worked, as tempting as it may be to re-invent the wheel.
Continued investment in digital innovation, from Augmented Reality changing rooms to TikTok partnerships, is vital. Burberry can’t control everything, but it can try to make the best of the uncontrollable.
China’s a long-term investment. Current Covid restrictions are short-term hurdles, but Burberry’s eyes are on the longer-term horizon. And it’s sensible. Akeroyd’s overarching goal is to reposition the brand, redefining its reputation.
That transformation won’t happen overnight. So investors still twiddling their thumbs on Burberry’s pre-pandemic share price recovery will be waiting a while still.
Freetrade is the trading name of Freetrade Limited, a company registered in England and Wales (No. 09797821). Freetrade is authorised and regulated by the Financial Conduct Authority (No. 783189).
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