These are tough times for retailers, but not every company has been struggling. FTSE 100-listed luxury fashion brand Burberry Group (LSE: BRB) has been showing plenty of style.
Fashion leader
The Burberry share price is up 27% over the past 12 months alone, thrashing the index, up 10% over the same period. The £8.89bn London-fashion house has global reach, led by a fast-growing operation in China, while its wealthy/aspirational customers have largely avoided the recent squeeze on incomes.
The stock is down 3.5% today, as its Q3 trading update showed retail revenue rising just 1% to £719m. Yet the report was largely positive, as CEO Marco Gobbetti reported “another good quarter as new collections delivered strong growth and we continued to shift consumer perceptions of our brand.” Perhaps markets were worried by his comment about being “mindful of the uncertain macro-economic environment,” but that’s a usual caveat to its more recent trading statements and, these days, who isn’t?
Burberry has driven its brand through careful use of social media and recently announced a partnership with tech giant Tencent in mainland China, with the first “social retail store” to open in Shenzhen next year.
Mainland China growth is still in the mid-teens, although political unrest halved sales in Hong Kong. Elsewhere, growth was largely in the low single digits, including the US, although tourists to continental Europe were spending more freely.
More growth to come
Burberry hiked its revenue projections for full-year 2020 slightly, from “broadly stable” to “a low single digit percentage.” I suspect markets expected more today, given that it now trades at 24.2 times earnings. There’s nothing new there as it’s been pricey for some time.
The forecast yield of 2% below the FTSE 100 average of 4.34% is covered twice by earnings, which gives scope for growth. City analysts are pencilling in earnings growth of 10% in 2021, and an even more impressive 13% the year after. Burberry still looks a buy. Alternatively, you could wait for a market dip and a cheaper valuation.
Marks & Spencer still struggles
I wish I could be so positive about another company that was once a big name in fashion, Marks & Spencer Group (LSE: MKS). Its decline has been dramatic, as its flourishing food stores were held back by a clothing operation that doesn’t seem to understand its customers, or how to cater for them. It even struggles to sell clothes online.
Last year, it crashed out of the FTSE 100, and the Marks & Spencer share price continues to slide, losing a third of its value in the last year alone.
As well as its own issues, management has also had to cope with the wider decline of the high street, a trend that looks unlikely to reverse. The £3.6bn FTSE 250 group is cheap, trading at just 10.4 times forward earnings, and comes with a generous forecast yield of 5.7%, covered 1.7 times by earnings.
Management is looking to boost food sales by selling online through Ocado, but still has to work out what to do with its clothing and home operations. I’d rather buy Burberry.
