I do like a stock with a strong brand, and they don’t come much stronger than Burberry (LSE: BRBY). With its broad international appeal, Burberry has a defensive edge against tough local conditions in its home market. That’s not much help against a global crisis though, and the Burberry share price has suffered during the Covid-19 pandemic.
Still, the shares have regained a good deal of their early losses. They’re still down 23% over the past 12 months, but I’m seeing a brighter bigger picture. Firstly, since the beginning of November, the price is up 31%. But the longer term is what matters, and over the past five years we’ve seen a 50% gain.
The Burberry share price rose nearly 6% during morning trading Wednesday, before retreating a little, on the back of a third-quarter trading update. The Covid-19 pandemic meant store closures in the quarter averaging 7%, and comparable store sales declined by 9%.
Overall retail revenue dropped 5% at constant exchange rates. But that looks pretty resilient to me in the face of lockdowns and economic weakness. And full-price online sales climbed by 50%, with mainland China sales rocketing in triple-digits. So that’s two trends really, online sales and Asia, and I expect them both to play an increasing part in the Burberry share price’s future.
The move to online selling has been on the cards for some years, but the events of 2020 have given it an extra impetus. And I don’t think that’s temporary, just bringing forward the inevitable.
Strength in China
Strength in the China market is also encouraging, as I see the fashion appetite in that part of the world as less fickle than here in the UK. I think it shows in the latest figures from the region, with Asia Pacific revenue up 11%. That includes Korea, which is another strong market for Burberry. Comparable store sales in Korea were up by mid-teens.
What’s the full year going to look like? Well, Burberry still has 15% of its stores closed with a further 36% on reduced hours or other restrictions. And the company says that “given this outlook, we expect trading will remain susceptible to regional disruptions as we close the financial year“. So the progress of lockdowns in various parts of the world could have an erratic effect on sales over the next few months. And we could see a bit of volatility in Burberry’s share price as a result.Â
Burberry share price future?
My overall view of the current year that ends in March 2021? I’m seeing it as a year of resilience. It’s showing that even a top brand like Burberry can suffer when we face worldwide crises. But I think it’s also showing the real benefits for a carefully managed company with one of the world’s top brands.
If Burberry can go through a downturn on the scale of this pandemic without facing any real threat, I reckon it can come out of it with very attractive long-term prospects. The Burberry share price looks good value to me — it’s on my potential buy list.