Burberry (LSE:BRBY) has endured a difficult few months. Sales for the first quarter were 47% lower than the equivalent period last year. This improved in June and it expects the second quarter to be around 20% lower than Q2 2019. Nevertheless, I do not think shareholders should rush to sell their Burberry shares as it still looks a promising business.
Engaging influencers
Burberry, which part of the FTSE 100 index, has embraced modern marketing techniques through its use of social media influencers and this appears to be paying off. Utilising such tools as Instagram TV, CGI geometric graphics and Spotify playlists, Burberry markets directly to its consumers through the channels most likely to engage them. Its summer monogram collection campaign featured Kendall Jenner and achieved an average reach over 60% higher than its previous collection.
It is also zoning in on specific markets, such as Mainland China, where it is seeing a rise in demand. During its recent leather goods launch, Burberry enlisted an influential fashion blogger to distribute limited edition pocket bags to his followers for free. Simultaneously, a series of sustainable pop-up stores featuring an augmented reality experience appeared throughout the region. This resulted in one bag style being sold out in under a minute and the entire range of pocket bags selling out within three weeks. I think this highlights the power of social influencers and direct-to-consumer marketing.
Burberry appears heavily focused on digital and tuned in to its target audience. I believe this is exactly what a fashion and lifestyle brand needs for sustained success.
Burberry shares its climate change ambition
Fashion is one of the biggest causes of global pollution and damage to the planet, so there is increasing pressure on companies in the sector to develop a sustainability strategy. Burberry is facing this challenge head-on with plans to become carbon neutral in its own operations by 2022. It has also joined forces with the UN, with the aim of a 30% reduction in greenhouse gas emissions from its extended supply chain by 2030. It recently launched ReBurberry Edit, which is a curation of styles crafted from sustainable materials, including regenerated fishing nets, fabric scraps and industrial plastic.
A favourite among millennials, the £6bn company has a price-to-earnings ratio of 49 so I would consider it an expensive share at its current price. Since the March market crash, Burberry shares have increased in value by 36%. Despite this, Burberry shares are down 33% year-to-date. Earnings per share are just under 30p and it has cancelled its 0.7% dividend yield for now.
Headwinds remain
It appears Burberry is confident it can withstand the economic headwinds and continue to sell to its target audience. It is streamlining its business with organisational changes. This includes cuts of £55m in office administration, which is likely to result in around 500 job losses.
So, can Burberry shares make me rich? In the current economic climate, I think it would take a long time to make a significant financial return. However, pop-up stores, digital activations and influencer engagement all point to a determined, ambitious and connected brand. The Burberry share price may continue to suffer while the pandemic persists, but the longer-term outlook seems resilient. As the share price appears expensive, I wouldn’t be rushing to buy today, but I wouldn’t sell either.
