Should I buy Burberry shares in July?

Burberry shares are trading at a 25% discount from their all-time high. With the ex-dividend date coming up, should I be buying its shares?

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Key Points

  • Burberry's share price fall can be attributed to multiple issues.
  • The stock goes ex-dividend on 30 June, and is paying a final amount of 35.4p per share, giving it a 2.8% yield.
  • The share price was as low as £14.80 in May, but I think it will eventually top £23 again.

The Burberry (LSE: BRBY) share price has been trading below the £20 mark for the better part of this year. Even so, I’m upbeat about its prospects. As a luxury company, raising prices shouldn’t deter its high-spending customers from continuing to buy its goods. Nonetheless, its share price is almost 10% down this year. Could this be an opportunity for me to buy Burberry shares then?

Burberry on discount?

There are multiple reasons behind the Burberry share price fall — rocketing inflation, low consumer confidence, fears of an impending recession, you name it. However, one economic metric that stands out is retail sector weakness. Retail sales figures coming out of China have been dismal.

Burberry receives the bulk of its revenue from Asia, and more specifically, China is a key market. As such, lockdowns there have impacted consumer spending substantially. As a result, the country’s retail sales figures have seen a steep decline. For context, China’s retail sales were 11.1% down year on year in April, and down 6.7% in May. Burberry said that Chinese sales accounted for 30% of its turnover last year, but were down 13% in Q4.

Making matters worse, that other key Asian market, South Korea has seen its retail figures decline on a month on month basis since January. Nevertheless, there could be a glimmer of hope for Burberry. As China’s major cities come out of lockdown, I expect sales to start rebounding.

Luxury perks

Do Burberry shares come with good income? Well, the stock goes ex-dividend on 30 June so if I buy it after that, I won’t get the latest dividend payout. But it’s planning a final payout of 35.4p per share, giving it a 2.8% dividend yield. While this isn’t the highest in the FTSE 100 index, the yield still outperforms the luxury industry’s average of 1.7%. Taking these factors into account, I think it’s a reasonable percentage.

Diamonds are created under pressure

Burberry shareholders felt the pressure when its share price dropped as low as £14.80 in May, but that pressure may be about to reverse. The stock has seen a steady recovery since then, and could be on track to head into the green, as retail sales in China are expected to recover sharply in the coming months.

Furthermore, the firm is expected to benefit from travel tailwinds. This is because it generates a substantial amount of revenue from airport stores and tourists shopping in destination cities. Having said that, Burberry will be reporting its Q1 results in around two weeks’ time. I’m not expecting strong figures given the lockdowns in China and poor retail sales data coming out of South Korea.

But like many investors, I’ll be paying close attention to guidance provided by management. A downward revision of its expected earnings for the year could send the share price lower. In that scenario, I’ll be looking to buy some shares. After all, the company has a healthy balance sheet with high-quality earnings margins. Therefore, I think it’s a matter of when, not if, Burberry shares will return to previous highs above £23.

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 considered so you should consider taking independent financial advice.

John Choong has no position in any of the shares mentioned. 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.

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