It’s another flat day on UK share markets as investors keep a close eye on the continuing public health emergency. The FTSE 100 is down fractionally on Friday, though not all British blue-chips are struggling for traction.
Indeed, the Burberry Group (LSE: BRBY) share price is soaring after the company announced that full-year results would beat market expectations. At £21.60 per share the fashion giant hit fresh 14-month highs earlier in the session. It’s slipped a bit since then but is still 6% higher from Thursday’s close.
Burberry’s sales recovery
In an unscheduled trading update, Burberry said that “we have continued to see a strong rebound” in business since December. As a result, the designer now expects “revenue and adjusted operating profit to be ahead of consensus expectations” for the fiscal year ending this month.
The FTSE 100 firm said that like-for-like store retail sales are likely to be between 28% and 32% higher in its fourth fiscal quarter. Burberry consequently expects full-year revenues to have fallen 10% to 11% in the outgoing trading year. Adjusted operating margin meanwhile is predicted to be in the range of 15.5% to 16.5%.
What the City thinks
Commenting on Burberry’s results, Sophie Lund-Yates of Hargreaves Lansdown commented: “You can’t keep a classic down for long and, in testament to the refreshed creative direction, Burberry’s sales have finished the year on a high. There were concerns the fashion icon’s products would fail to resonate, with the pandemic stopping customers from splurging on big-ticket clothing.” She said that the better-than-expected sales illustrate “the value of a strong brand”.
Lund-Yates added that the FTSE 100 fashion giant might endure fresh turbulence later down the line, however. She still thinks a disruption to tourism spending could see its normal revenue patterns disrupted for some time. But the analyst added that this would likely represent a temporary problem rather than “an existential crisis”.
City analysts think Burberry’s bottom line will bounce back strongly in the upcoming financial year. A 46% improvement in annual earnings is predicted for the 12 months to March 2022. This leaves the FTSE 100 company trading on a low forward price-to-earnings-growth (PEG) ratio of 0.6.
A FTSE 100 bargain?
Burberry’s sub-1 PEG ratio for the new fiscal year suggests that the fashion brand is being undervalued on the basis of current earnings estimates. But bear in mind that City forecasts can topple if trading conditions deteriorate. And there are certainly significant risks to Burberry’s profits in the short-to-medium term. The Covid-19 crisis and the possibility of ongoing lockdowns and travel restrictions are factors. But the emergence of fresh trade tensions between the US and China could also smack demand in the FTSE 100 firm’s key markets hard.
That said, Burberry is one of the world’s most popular and evergreen fashion brands. And its focus on the fast-growing markets of Asia could help it deliver exceptional profits growth over the long term. I think it’s worth close attention at current prices, but I won’t be buying for now as fashion isn’t a part of the market I know a lot about. I prefer to be like Warren Buffett and stick to what I know!
