The share price of well-known luxury fashion house Burberry Group (LSE: BRBY) has held up well after recovering from a more than 40% dip during the summer of 2016. The firm’s quality indicators look good, with the figures for return on equity and return on capital both running above 20, and operating margin knocking on the door of 15.
Wednesday’s full-year results showed a steady-as-she-goes performance with revenue broadly flat, adjusted diluted earnings per share 6% higher than the year before and free cash flow 4% higher. The directors pushed the full-year dividend up 6% in a show of confidence in the outlook.
A plan to re-energise
Back in November, the company revealed a multi-year plan “to re-energise our product, our communication and the experiences customers have of our brand to deliver sustainable long-term value.” In March, the firm added muscle to the plan by announcing the appointment of Riccardo Tisci as chief creative officer. The 43-year-old designer moved to Burberry after serving more than a decade as creative director at Givenchy. He will direct all Burberry collections, and chief executive Marco Gobetti said at the time of the appointment: “Riccardo is one of the most talented designers of our time.” Burberry’s success depends on the strength of its brand and the way its products appeal to the firm’s customers, so this really is a key appointment.
Will Tisci’s product designs and Burberry’s re-energisation combine to drive a new period of growth? I think there’s every chance that they will if the world economy continues to strengthen. Gobetti cited Tisci’s “skill in blending streetwear with high fashion” as being “highly relevant” to today’s luxury consumer and said his creative vision will help position the Burberry brand “firmly” in the luxury market. I reckon we could be at a point of change with Burberry today, which makes the firm a good candidate for further research with a view to investing in the stock.
Massive potential abroad
Despite the ‘Englishness’ of the brand, only a small part of revenue comes from Britain. The opportunity for investors here is all about the way the brand appeals to customers abroad. During the trading year to March, around 6% of operating profit came from licensing and 96% from the retail and wholesale operations. In terms of revenue, 40% came from the Asia Pacific region, 36% from Europe, the Middle East, India and Africa, and 23% from the Americas. Licensing generated revenue of 1%.
There is potential for growth driven by an expanding affluent population in countries such as China and that potential could meet with Burberry’s re-invigorated brand to produce pleasing results. While we are waiting, Wednesday’s 1,843p share price puts the forward dividend yield at around 2.4% for the trading year to March 2020. Over the past four years, the dividend is up around 30% and further increases look likely in the coming years. My guess is that Burberry will succeed from here, so the question now is, can you afford to miss out on this FTSE 100 firm’s dividend and growth potential?
