Burberry (LSE:BRBY) shares pushed upwards this week following the news that chief creative officer Riccardo Tisci would be stepping down at the end of the month. However, the gains were only enough to regain the value lost after the chancellor’s mini-budget last week.
I’m actually pretty bullish on Burberry, and there are several reasons for this. So let’s take a closer look at the luxury fashion house’s fortunates and explore whether it might be right for my portfolio.
Three year trend
If I’d invested £1,000 in Burberry three years ago, today I’d have £830, plus dividends — however, the current dividend yield is only 0.68%. So clearly, that’s not a great return. In fact, it pretty poor.
Burberry struggled during the early days of the pandemic as China, its main market, went into lockdown. I was fortunate to buy the stock near its nadir and sold it almost exactly a year later when the stock passed through 2,100p — it’s not like me to sell so soon.
But in 2022, China is posing more problems. Cities have been in and out of lockdown throughout the course of 2022, and economic growth has slowed. In July, the retailer said sales fell 35% in mainland China because of Covid-19 restrictions and store closures.
A change at the top
Earlier this week, Burberry announced that Tisci had decided to leave after almost five years, during which he spearheaded Burberry’s creative transformation. Despite Tisci being well respected in the industry, the announcement pushed the share price higher.
Tisci will be succeeded by Briton Daniel Lee, who will join the group on October 3. Burberry said Lee will be based at the company headquarters in London and report to chief executive Jonathan Akeroyd. Lee had been the highly-respected creative director of the Italian luxury fashion house Bottega Veneta from 2018 to 2021.
Outlook could be improving
Burberry said retail revenues for the 13 weeks ended 2 July came in at £505m, up 5% at reported currency and unchanged at constant exchange rates. In fact, excluding mainland China, comparable store sales grew 16%, while comparable store sales across Europe, the Middle East, India, and Africa grew 47% year on year.
And while the Chinese economy could be in a healthier place, Covid-19 restrictions are becoming easier on business. Before the pandemic, around 40% of Burberry’s sales were from China, or Chinese tourists buying abroad.
Moreover, luxury goods companies tend to be bombproof against inflationary and even recessionary environments. The profile of the consumer is often insulated from the economic constraints that impact many others during economic downturns.
Burberry should also benefit from the weaker pound. The yuan and the dollar have both gained considerably on the pound this year and this should lead to inflated GBP earnings. A weak pound could push costs up but, on the whole, I see a net benefit here.
As a result, and at the current price, I’d add Burberry to my portfolio.