The past five years have been miserable for investors in online retailer boohoo. The share price collapsed 81%. I’m not tempted by the AIM-listed company, but there is a FTSE 100 stock in the fashion industry that looks more appealing.
boohoo operates in the fast fashion arena, which has been beset by concerns about labour conditions and sustainability. Instead, I’m drawn to the luxury end of the market. British fashion house Burberry Group (LSE:BRBY) is the dividend share on my radar.
Here’s my take on the outlook for the business.
Key performance indicators
Growth in the Burberry share price has outpaced the FTSE 100 index over 12 months. The shares have climbed 26%. However, the stock’s slumped 15% in a month, which suggests now could be an opportune time for me to buy.
Currently, the company offers a 2.76% dividend yield, covered by around two times earnings. Long-term shareholders have been rewarded with payouts through periods of economic turbulence, like the 2008 financial crisis and the Covid-19 stock market crash. That’s a promising sign of a reliable passive income generator.
Recent results are encouraging too. The company delivered a 21% year-on-year adjusted operating profit hike for FY23. In addition, it’s due to complete a £400m share buyback in FY24. Burberry also maintained its medium-term targets and the proposed dividend has increased 30%.
Traditionally, it’s been a recession-resistant stock as its consumer base is sufficiently wealthy to be largely unaffected by macroeconomic downturns. However, arguably Burberry’s future also lies with aspirational middle class customers, who are being affected by high global inflation rates.
The group has cautioned that the macro environment is riddled with risks that could impact further share price growth. Although it has benefited from an influx of Chinese tourists, I’m concerned this uptick in activity could be transitory. In addition, luxury growth is slowing in the crucial US market.
Competitive industry
In common with fast fashion, the luxury end of the market is highly competitive. Burberry chairman Gerry Murphy has criticised the UK government for making its job harder. He lamented Brexit as a “drag on growth” and branded Rishi Sunak’s decision as Chancellor in 2020 to remove VAT refunds for tourists spending in the UK as “a spectacular own goal“.
Indeed, many of the firm’s strongest rivals come from the European continent. One example is French luxury conglomerate LVMH, which has a significant presence in fashion and leather goods. Its star brands include Louis Vuitton and Christian Dior. No doubt Murphy had companies like LVMH in mind when making his pointed comments.
One way the company’s attempting to overcome these challenges is a change in focus for the brand’s aesthetic. Spearheaded by CEO Jonathan Akeroyd and still-new creative director Daniel Lee, Burberry is concentrating on its heritage and British brand status after a less-obviously-British style under its previous Italian CEO and Italian creative chief.
I think there are merits to Burberry’s new approach. It should help the business re-establish a distinct identity to set it apart from competitors. Time will tell how successful this proves to be.
A stock I’d buy
Despite the risks, I think Burberry is a good buy for me. A reliable dividend history and a new brand strategy are compelling reasons to invest. If I had spare cash, I’d buy today.
