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A horn-adorned baseball cap is not to everyone’s taste. But coming up with fun ways to celebrate the Year of the Ox is paying off for Burberry. The British luxury goods purveyor, which relies on Chinese customers for 40 per cent of sales, reported a strong rebound in sales on Friday. The share price jumped 7 per cent.
The bounce did not extend to its luxury peers, already known to be beneficiaries of strong Chinese spending. Shares in eyewear company EssilorLuxottica hardly budged, even as it announced a return to a pre-pandemic level of performance this year. But Burberry has more than most to prove. Its trading statement raises hopes that its sluggish recovery catwalk might have a bit more bounce.
Burberry’s share price collapsed early in the pandemic, amid fears its relaunch would not get the attention needed. The share price underperformed the MSCI Europe textiles, apparel and luxury index by about 40 per cent in the year to July. Since then, like a Burberry scarf in the breeze, its shares teasingly left its peers behind, rising almost half as much again as the benchmark. They trade on a price-to-forward earnings ratio of 31, well above the three-year average.
Fourth-quarter same-store sales might rise by almost a third, flattered by the comparison with year-ago locked-down China. Equally cheering is the steer that adjusted operating margins could hit 16.5 per cent for the year. Reducing its reliance on wholesalers lifts profitability and gives Burberry more control over markdowns on unsold goods. It could yet reach its target of 20 per cent margins in 2023, says Citi. That would be in line with boss Marco Gobbetti’s five-year turnround plan.
Should Burberry stumble on its heels, it risks becoming a takeover target. True, the share price surge means the business has less appeal to bargain hunters. But after LVMH’s purchase of Tiffany, Burberry is one of few publicly traded luxury companies without a large controlling shareholder. That alone puts it on the shopping list.
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