Every time I check the Burberry (LSE: BRBY) share price, it’s doing one of two things. Bouncing up, or bouncing down. Lately, it’s been moving by several percentage points almost every day. What’s it trying to tell us?
The FTSE 100-listed luxury fashion retailer has a lot of explaining to do, given its recent hyper-volatile performance. The shares are down almost 40% over three years, but they’re up 43% in the last 12 months.
Fruity FTSE 100 stock
The plunge began in 2023, as the luxury goods sector struggled across the board, largely due to falling demand from key markets such as China. Profit warnings, falling revenues and slowing retail sales spooked investors. But not me. I saw the trouble as a buying opportunity and dived in, only to find myself sitting on a quickfire 40% loss as the slide continued.
By September 2024, the shares had slumped to a 15-year low, and Burberry was relegated to the FTSE 250. I doggedly stuck with it, and I’m glad I did.
The shares bounced back even faster than I could have imagined, as investors welcomed new CEO Joshua Schulman’s Burberry Forward strategy. This aimed to refocus the brand on its core heritage products, such as outerwear and trench coats, simplify its retail footprint and cut costs.
I thought investors jumped too soon, to be honest, because Schulman hadn’t actually delivered anything yet, just set out the plan. Still, I wasn’t complaining.
And now it appears to be paying off. In November, Burberry reported an increase in quarterly comparable store sales for the first time in two years, helped by a turnaround in China. It posted an adjusted operating profit of £19m in the first half to 27 September, going some way towards reversing a £41m loss a year earlier. Operating margins turned positive at 1.9%, up from a negative 3.8%. They’re still wafer thin though.
JPMorgan subsequently downgraded Burberry from Neutral to Underweight, suggesting consensus forecasts were too optimistic given wider macroeconomic challenges. There hasn’t been much company-specific news around, but the shares have been going bananas as sentiment fills the vacuum. They jumped 4.62% yesterday, but are down 3.38% today (7 January). That’s just one example.
This stock is volatile
Despite their volatility, the general direction of travel is upwards. So should investors sink their teeth into Burberry today?
One thing to note. Burberry publishes its Q3 trading update on 24 January. While we wait, broker RBC remains optimistic. It notes that last year, Burberry was busy clearing excess inventories. That’s largely over now. RBC still rates the stock Outperform and predicts 2% like-for-like sales growth to £658m, led by growth of 3% in Greater China and 2% across the Americas.
RBC’s target price is 1,400p, but that implies a modest rise of around 5% from today’s 1,314p. Consensus forecasts produce a target of just 1,310p, down slightly from today. This backs my own view about Burberry, which is this.
If I didn’t already own Burberry shares, they wouldn’t be my first pick today as progress could get stickier from here. I’m holding, but investors should consider looking elsewhere on the FTSE for the next big recovery play. Maybe something a little less bananas.
