Luxury brand Burberry (LSE: BRBY) was the standout gainer in the FTSE 100 this morning (+13%) as the company released a better-than-expected trading update to the market.
Retail revenue over the 13 weeks to 29 June came in at £498m — 4% higher than the same period in 2018 and double what some analysts were expecting.
A particularly strong performance was seen in China where sales grew by a mid-teen percentage. Recent pressure on the pound also prompted visitors to the UK to splash the cash.
Perhaps the most important aspect of today’s update for holders, however, was news the new collections from designer Riccardo Tisci had delivered “strong double-digit percentage growth” compared to the previous year. Importantly, Burberry also stated that this quarter was the first where the proportion of new product in its stores was “meaningful” (roughly 50%).
Aside from the above, the 163-year-old business remarked it was successfully building “brand heat” as part of its multi-year transformation plan by improving its presence on social media sites such as Instagram and WeChat. Strong press coverage and influencers continuing to“organically endorse” its wares had also benefitted the company.
Following today’s numbers, management maintained its guidance for the current financial year of “broadly stable” revenue and margins while predicting “a more pronounced weighting of operating profit in H2″ than in the previous financial year, due to a strong first-half comparator in FY19.
All told, this was a very positive update from the £8bn-cap. The only drawback is that the shares are even dearer than they once were.
Before this morning, the stock was already trading on a forecast price-to-earnings (P/E) of 24. That’s not unreasonable for a company of this quality (evidenced by the consistently high returns it makes on the money it invests) but today’s price jump will likely make some prospective buyers more reluctant to pay up. Especially if the value of the pound shows signs of recovering on news of a Brexit breakthrough.
So long as — like me — you’re in for the long haul, I think Burberry is a top-tier class act and one worth holding in a fully-diversified growth-focused portfolio.
Checking in
Also providing an update to the market this morning was credit checker Experian (LSE: EXPN). In sharp contrast to Burberry, however, the market greeted this Q1 trading update with a shrug of the shoulders.
Revenue rose 7% at constant exchange rates over the three months to the end of June. Business in both North and Latin America was particularly strong with each market registering revenue growth of 9%.
Total and organic revenue growth in the UK and Ireland, however, came in flat, which probably explains why shares are down so far today, even if Experian saw no reason to alter its guidance for the year.
Analyst projections of a 24% rise in earnings this year leave the stock trading on a forecast P/E of 29. Regardless of its solid growth prospects, that’s undeniably high.
So, like Burberry, I would only be tempted to begin building a position at this kind of price if I was committed to holding for the long term. Given that the company’s value has already increased by 26% since the start of 2019, I can’t see much more upside over the next few months.
