There's more to Burberry than a distinctive check and an ASBO -- its shares are up 26% this year.
For many of us, the word Burberry
(LSE: BRBY)
evokes images of baseball hats and anti-social behaviour, an unintended consequence of making an aspirational brand more accessible to the great unwashed.
The truth is, however, that this is a particularly British phenomenon, and Burberry is a worldwide brand that's perceived differently in other markets. And while the trademark check is still a favourite of the Japanese salaryman, very few of whom are subject to ASBOs, a preview of the company's Spring/Summer 2007 range shows another side to the business.
Shares in Burberry have outperformed the overall market and their sector (previously 'General Retailers', now 'Personal Goods') since the de-merger from GUS in 2002. This year is the company's 150th anniversary, and it has been particularly rewarding for shareholders with the launch of their Burberry Icons Collection -- the shares are up 26% since January. A trading statement in October saw the shares jump 8%, with news of strong underlying revenue growth and further expansion.
This morning's interim results took a little of the shine off that, as investors came to terms with the increased costs associated with the ongoing 'Project Atlas', a re-design of the company's IT infrastructure. Shares fell 3.5% in early trading, but had fully recovered by mid-morning.
So, at 555p, are the shares worth adding to your winter collection? On an historical price/earnings ratio (PE) of 22 (rolling six-month basis), the shares trade at a discount to the personal goods sector, but short term profit growth is likely to be restrained by further investment in IT. On the other hand, a more focused product range should improve efficiencies, and over the longer term Project Atlas costs will fall away leaving the company to benefit from better information systems.
While I appreciate the value of a strong global brand, paying PE multiples in the 20s is something I tend to avoid, even if it represents a discount to the sector. Trends in fashion come and go, and I don't rate my ability to predict them on a global basis. As a result, I passed up the opportunity to invest in French Connection
(LSE: FCCN)
a few years ago, thereby missing out on the huge gains and avoiding the subsequent crash.
Burberry is an excellent brand that will probably still be with us in another 150 years, but the shares are not for me.
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More:Britain's Biggest Brands
