The Burberry share price (BRBY) has tumbled. Here’s why I’d buy now

The Burberry Group plc (LON:BRBY) share price has fallen 10% in early trading but this Fool thinks the company remains a great pick for the long term.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The share price FTSE 100 luxury firm Burberry (LSE: BRBY) was firmly in the red this morning. Based on today’s full-year numbers, some may find that surprising. 

Full-year numbers 

Naturally, the coronavirus pandemic was always going to leave a mark. Revenue at Burberry fell 30% over the first half of the last financial year due to the company needing the close its stores as many countries around the world went into lockdown. Travel restrictions also meant that trade from tourists was heavily impacted.

In the second half of the year, however, sales bounced back by 8%. The fourth quarter was particularly good with comparable store sales almost returning to the levels seen in FY19. This was despite 16% of Burberry’s estate remaining closed. Full-price sales were also 63% higher than over the same three-month period in the previous year as a result of decent trading in China, Korea and the US.

All this leaves revenue down 10% (£2.34bn) for the year to 27 March. That’s really not too bad considering the challenges the firm has had to face. What’s more, full-price comparable store sales rose 7% as a result of an “excellent response” to new products, innovating selling formats and Burberry succeeding in attracting new, younger shoppers.  Adjusted operating profit of £396m was down 8% at constant currency compared to the previous year. However, this actually beat the consensus forecast of £378m.

Dividend delight

There was more good news for shareholders. Although not really known for its income credentials, Burberry said that it would reinstate its full-year dividend to 42.5p per share. Based on the share price as I type, that gives a yield of 2.2%.

Commenting on today’s numbers, CEO Marco Gobbetti reflected that the company had achieved its objectives for the period despite the pandemic. Considering this, one might wonder why the Burberry share price tumbled 10% this morning. Since the COVID-19 headwind was already known, I wonder if at least some of this is due to the outlook provided by the company. 

Where next?

Looking ahead, Burberry said that it expects revenue to increase “at a high single-digit percentage compound annual growth rate”. This will be supported bycontinued outperformance of full-price sales“. 

However, the sticking point for the market appears to be down to margins being impacted in the short term due to increased investment. As a buy-and-hold investor, that doesn’t bother me, but it does seem to have put off those with more limited time horizons. Some profit-taking is perhaps inevitable.

Ongoing fears surrounding rising inflation won’t have helped either. On a different day, Burberry’s share price may have proven more resilient. However, today’s reaction does underline just how quickly sentiment can turn.

Long-term hold

As frustrating as today’s setback to the Burberry share price is, I’m not about to sell my stock any time soon. Although past performance is certainly no guarantee of future returns, I’m led by what the company has achieved over many years rather than over a short trading period. On that basis, this remains a high-quality company with strong returns on capital and solid finances. Besides, those buying exactly one year ago would still be 42% up!

Far from running for cover, I think today represents another opportunity for me to add to my position. 

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.

Paul Summers owns shares of Burberry. The Motley Fool UK has recommended Burberry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

Dividend deals! 2 passive income stocks that still look undervalued

Royston Wild explains why these FTSE 250 passive income stocks might STILL be too cheap to miss, despite theirrecent price…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

Is BT Group one of the FTSE 100’s greatest value shares?

BT's share price looks like a bargain when you look at the P/E ratio and dividend yield. Is it one…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

The National Grid share price just plunged another 10%. Time to buy?

The National Grid share price is one of the FTSE 100's most stable, and nothing much happens to it? Well,…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

Up 15% in 3 months, but I still won’t touch Vodafone shares with a bargepole

Harvey Jones has been shunning Vodafone shares for years. The FTSE 100 stock is finally showing signs of life, but…

Read more »

Growth Shares

This UK stock could be like buying Nvidia in 2021

Jon Smith thinks he's missed the boat with Nvidia shares, but flags up a UK stock that has some very…

Read more »

Businesswoman calculating finances in an office
Investing Articles

The FTSE 100’s Intertek delivers a bullish update — can the share price soar?

I’d describe Intertek as a quality business with a decent dividend income, but will the share price shoot the lights…

Read more »

Market Movers

Up another 10% yesterday, how high can the Nvidia share price go?

Jon Smith talks through the latest results but flags up why further gains could be harder to come by for…

Read more »

Investing For Beginners

Down 43% in a year, I think this value stock is primed for a comeback

Jon Smith flags up why a FTSE 250 share has fallen so much in the recent past, but explains why…

Read more »