Burberry (LSE:BRBY) shares have had a turbulent year. If an investor had put £5,000 in the luxury fashion house exactly one year ago, their holding would now be worth just £4,395 — a loss of 12.1%.
So what’s happened at the business?
Out of fashion?
Burberry’s past year has been defined by a sharp drop in sales and profits. This has all been set against a challenging global luxury market. For the year ended March 2025, revenue fell 17% to £2.46bn, while adjusted operating profit collapsed 94% to just £26m. Retail comparable store sales dropped 12%, and wholesale revenue declined by over a third, although this came as the company reviewed its partner network. Clearly, this isn’t what an investor wants to hear.
The firm is in the early stages of a turnaround under new-ish CEO Joshua Schulman, who launched the ‘Burberry Forward’ strategy to reignite brand desire and focus on core categories like outerwear and scarves. These categories have shown resilience, outperforming other segments and helping to stabilise sales trends in the second half of the year.
Despite the tough results, investors have responded positively to the turnaround plan and cost-cutting measures, including plans to cut around 1,700 jobs globally by 2027 and unlock £100m in annual savings. The share price has rebounded from its lows, rising more than 60% since its 52-week nadir. Despite this, it remains down over the past year.
Valuation: is Burberry still worth considering?
Burberry’s valuation metrics are very mixed. The company appears overvalued compared to much of the FTSE 100 — from which is was demoted — but the earnings growth from the current position is expected to be very strong.
The forward price-to-earnings (P/E) ratio swings dramatically. After a loss in 2025 (negative adjusted earnings), it’s expected to be 59.6 times in 2026 and 23.3 times in 2027. These are still high versus luxury peers, but falling as earnings are forecast to recover.
Dividend payments have been suspended for 2025, with only a token payout expected in 2026 (a 0.41% yield) and a more normalised 1.89% yield in 2027, based on current forecasts. It’s worth noting that if dividend payments were to reach 2024 levels again, the forward yield would be around 6.2%.
Dividend coverage is expected to improve. The payout ratio drops from 82.5% in 2024 to 24.2% in 2026 and 44% in 2027, suggesting a more sustainable approach if profits recover.
However, net debt has risen sharply, from £460m in 2023 to £1.4bn in 2025, with only a modest reduction expected by 2027. This adds risk if the turnaround falters.
| Year | Forward P/E | Dividend Yield | Dividend Cover | Net Debt (£m) |
|---|---|---|---|---|
| 2025 | -61.2 | – | – | 1,398 |
| 2026 | 59.6 | 0.41% | 24.2% | 1,078 |
| 2027 | 23.3 | 1.89% | 44% | 972 |
The bottom line
While the share price has bounced off its lows, the company’s valuation still looks demanding given ongoing operational risks and the slow pace of recovery. The market is pricing in a turnaround, but with net debt elevated and dividends only gradually returning, there’s not a great margin for error. For now, I’m watching from the sidelines. I want to be bullish, but betting on turnarounds can be risky.
