Last year, long-time FTSE 100 member Burberry (LSE: BRBY) fell out of the blue-chip index after a torrid time for the business. The share now sits in the FTSE 250 index of medium-sized companies.
However, the Burberry share price has been on fire lately and is up 73% since April.
So, could Burberry return to the leading blue-chip index in one of its periodic reshuffles in coming months?
FTSE 100 reshuffle is imminent
The stock exchange will announce the latest quarterly changes (if any) to the FTSE 100 index membership today (4 June), after the market closes.
An indicative list issued last month suggested that no FTSE 250 shares would move up to the index. But the final decision uses data as of the market close yesterday (3 June).
While Burberry is among the four or so FTSE 250 firms with the biggest market capitalisation right now, its £3.8bn market cap does not even match the lowest in the FTSE 100 (Polar Capital Technology Trust).
So while FTSE 250 firms with bigger market caps, such as British Land and Direct Line, may move into the main index, I doubt Burberry will do so on this occasion.
Buffeted by a difficult marketplace
The fact that Burberry was booted out of the FTSE 100 and has subsequently rallied by over 70% in the space of a couple of months is an indicator that the company has been going through a mixed chapter in its history.
That huge jump in the share price is not enough to wipe out past falls, however. The share is still 37% lower now than five years ago – and has slumped 58% since April 2023, even taking the recent strong performance into consideration.
A key risk right now is economic weakness hurting spending on pricey clothing brands like the famous British trenchcoat maker. Last month’s full-year results made for uncomfortable reading. Revenues fell 17% year on year, a £418m operating profit the prior year turned into a loss this time around and the dividend remains suspended.
Why then has the share price soared lately?
Lots of opportunity still ahead
Investors have warmed to the potential for a turnaround story at the famous brand. It has a distinctive visual identity, large store network and a customer base that while it bought much less last year than before, is still willing to put some money into Burberry’s tills.
The fashion house is implementing a plan to fix the business, ranging from better visual merchandising to focusing on its core product categories. It reckoned that helped explain why comparable retail sales in the second half of last year were better than in the first half. It has been cutting costs too. It expects this year to show an improvement in profit margins.
The market capitalisation of £3.9bn looks cheap if the company can indeed boost profits back to where they once were. If it can show signs the turnaround is working, I think the share price could gain from its current level – perhaps significantly enough to rejoin the FTSE 100 later this year.
For now, though, that global economic uncertainty and its potential impact on customer demand is a risk that weighs on my mind. So I will not be buying the share for my portfolio.
