Market News & Analysis
New Burberry collection vs. Hong Kong insurrection
Ken Odeluga November 14, 2019 3:43 AM
Hopes are high for new collections from Burberry’s star designer, though Hong Kong disruption and China’s slowdown may drag
Britain’s main contender in the global luxury market, Burberry, will release closely watched results for the first half of its 2020 fiscal year on Thursday at 07.00 GMT.
The £8.4bn group made clear in the summer that it expects operating profit progress to be weighted towards the second half, tempering expectations of what it could achieve in H1. Another implied headwind for forthcoming results: strong figures from the comparable stretch in the year before.
Hong Kong, China
On top of Burberry’s caution, the faltering economic and geopolitical backdrop in Greater China, a key Burberry region, will also weigh. Increasing turmoil in the Hong Kong hub and some of the slowest mainland growth rates in a generation have weakened the yuan, adding pressure to retail sales that were already softening in step with consumer sentiment. China’s year-on-year retail sales growth is also scheduled to be updated on Thursday. Economists forecast a rise of 7.8% on average in October, the same as the month before. That would compare with volume growth of around 10% in the same month of 2018.
Collections mix, Plan A
Still, a positive response to debut designs by Chief Creative Officer Riccardo Tisci is expected to have underpinned sales. Even so, any growth may be offset by lower-priced inventory from old collections. More broadly, Burberry’s multi-year recovery plan is now in full swing; with the help of a 50% capex hike in the current year. Burberry shares are likely to be sensitive to signs that CEO Marco Gobbetti’s gambit to take the group even further upmarket is taking a bigger toll on present value than expected.
Key forecasts (Burberry-compiled unless stated)
- H1 revenue: £1.26bn, up 3.4%
- H1 operating profit: £172.33m, down 0.1%
- H1 pre-tax profit: £174.66m, down 3%
- H1 retail sales £987.4m (Bloomberg’s poll)
- H1/Q2 Burberry Brand like-for-like sales: +4%/+4.6%
Other points to watch
- Store space: fell 2% in Q1, lower space is seen as key for higher profits in H2
- Recent performance by region: (Burberry seldom reports exact regional growth data)
Asia (41% of total) – ‘high-single-digit’ growth
Greater China – ‘mid teens’
Europe/UK (36% of total) – static though supported by tourism in Q1
Americas (23% of total) – U.S. up slightly, Canada down
Possible stock price reaction
The shares are up 18% in 2019 though down from a peak gain of 35% in mid-July. They began to recoup in line with the broader market in mid-October. Given tempered expectations, positive surprises in H1 results could easily spark a significant spike higher. On the other hand, the risk is that the challenging economic and geopolitical backdrop in China has taken a higher toll than forecast. In that case, the stock could cede further gains made this year.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.