Luxury giants Burberry (LSE: BRBY) and Supreme recently announced a collaboration to launch a new Spring 2022 collection on 10 March. With Supreme carrying huge sales momentum and a large following behind its brand, I will assess whether the partnership between the two brands will bring an uptake in sales for Burberry, and whether the share price will rebound from a 10% drop (YTD).
Supreme has a history of collaborating with luxury brands such as LVMH and Tiffany & Co. The former highlighted the collaboration as one of the core reasons behind its sales growth and recovery from slow tourism after the Paris attacks in 2017, showing the positive impact Supreme has on sales. Burberry had initially laid out a plan in its half-year report to stimulate recovery in sales growth post-Covid by capturing a bigger portion of the younger target market, and this alliance is definitely steering the company in the right direction, in my opinion. Given that Burberry’s largest target market is in China, it is facing similar conditions to that of its competitors at LVMH in 2017 as it grows out of a Covid environment. Therefore, I am expecting the Supreme collaboration to do the Burberry sales figures wonders. Moreover, Burberry’s Winter 2022 fashion show will debut the line on 11 March, which will no doubt leave Burberry shareholders excited.
The future is Burberry
In Burberry’s attempts to capture a younger target market, further investments were made in digital innovations. The latest trading update showed that the London-based luxury brand achieved its highest levels of reach on Instagram and TikTok in the most recent quarter. Additionally, it managed to stimulate more engagement through new store concepts that had immersive brand experiences. This was specifically seen in its new flagship store in Shanghai, which is supporting sales recovery and revenue growth in its main target market. The firm quoted, “Digital innovation remains a key driver of growth for the business with digital full-price sales up high double digits.”
All about the guidance
Although the news gets me excited, I am wary that even a sales beat in Q4 will not be enough to propel the Burberry share price back into recovery mode if it offers poor guidance for the financial year ahead, as evident with many other stocks that have reported earnings recently. Although the latest trading update stated that, “Despite the ongoing challenges of the external environment, we are confident of finishing the year strongly”, a lot has happened since mid-January: oil prices have hit new highs, sanctions put into place, and inflation getting hotter. As such, initial guidance of high single-digit top line growth and meaningful margin accretion might have shifted since then . Nevertheless, I am confident that luxury brands such as Burberry have the ability to pass costs on to consumers due to their strong pricing power as a renowned brand. Moreover, Burberry shares are currently trading at a reasonable price-to-earnings ratio of 13.97, which is also why I am interested in buy some shares for my portfolio.