Unilever plc’s Emerging Market Success Is Good News For Burberry Group plc!

Unilever plc (LON: ULVR) and Burberry Group plc (LON: BRBY) have had differing fortunes in emerging markets, but the long-term story is still a riveting read, says Harvey Jones

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You don’t read so much about the emerging markets story these days. With China slowing, Russia in auto-destruct mode and Brazil all but forgotten, only India is grabbing the headlines in a positive way.

The investor trend for piling into FTSE 100 stocks primarily on their exposure to emerging markets has abated as a result.

The mixed performance of China-focused banks HSBC Holdings and Standard Chartered , and major miners BHP Billiton and Rio Tinto haven’t helped. Nor have patchy results from Diageo.

But now there is some good news from emerging markets. Unilever (LSE: ULVR) (NYSE: UL.US) is the beneficiary, and its success spells more good news for Burberry (LSE: BRBY).

Hope Emerges

Unilever has just posted a healthy 5.4% first-quarter sales growth in emerging markets, against 2.8% across the group as a whole.

Emerging markets are now Unilever’s prime growth engine, with sales dropping 0.7% in developed markets. Without its global exposure, markets would be taking a far dimmer view of the stock.

Emerging market growth may be slowing but the consumer boom continues to gather pace, as consumers load up their shopping trolleys with Western-branded foods, household goods and health and beauty items.

Trade Winds

Emerging markets aren’t a monolithic entity, though. Unilever did suffer setbacks in Brazil and Russia, but China remained stable, despite bubble fears.

Unilever’s results were also driven by fair currency winds. The 12.3% rise in first-quarter sales to €12.8bn included a 10.6% currency boost, because Unilever reports in the declining euro.

The end of double-digit emerging market GDP growth will no doubt temper its prospects, but the outlook still looks far more exciting than in the ageing, indebted, slowing West.

Asian Angst

Luxury goods maker Burberry’s second-half trading update saw a healthy 9% rise in group sales to £1.4bn, with double-digit growth in all regions.

In contrast to Unilever, Asia-Pacific was a problem, with sales down in Hong Kong as pro-democracy protests made getting to its stores difficult, and visitors from mainland China began spending more cautiously. The Chinese government crackdown on excess has also had an impact.

The Story Continues

Like Unilever, Burberry has benefited from its global diversification strategy, with sales in developed markets holding strong, helped by flagship store openings in Los Angeles and Japan. Currency headwinds eased as sterling’s recent recovery flattened out, helped by weakness against the dollar.

Burberry’s emerging market setback looks temporary to me. Unless there is a shock, emerging market appetite for luxury seems likely to remain strong.

Unilever’s success in this region suggest that the emerging markets story is far from over, but has further to run for both stocks.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Burberry. The Motley Fool UK owns shares Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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