FTSE 100 luxury brand Burberry (LSE: BRBY) has been on a tear recently following a healthy first quarter of the year, with restored faith in the company after its weak performance in the not-so-distant past. I have long argued that this is a share worth buying and since the time I first wrote about it in October last year, to the last close as I write this, the share price has increased by over 37%. Insofar as the share price is linked to the company’s performance, this trend gives me confidence that the business is indeed doing well.
But I think the key question now facing investors, is this: how will it perform in the future? Its long-term outlook is particularly important, as we at Motley Fool are most interested in opportunities that will hold investors in good stead over time.
The latest release confirmed the earlier stated outlook for FY20 of broadly stable revenue and operating margins. This, according to the company’s plans, is the first part of its two-phase transformation. It intends to “accelerate and grow” in the second stage, with “high single-digit revenue growth” and “meaningful adjusted operating margin improvement”.
A comparison of the latest update to the previous one reveals genuine improvement that keeps me optimistic about its plans. For instance, like-for-like sales grew by 4% for the latest quarter, inching up from 3% in the same quarter last year. A big positive is that its growth in China, one of its biggest markets, has picked up significantly.
Performing in hard times
I also like the fact that Burberry is doing well at a time when other fashion labels and retailers have hit hard times, even if they are not exactly comparable (none of them are both in the FTSE 100 and a luxury fashion brand). For instance, while the latest trading update for Next was encouraging, as long as its full-year guidance remains unchanged, I continue to think there is reason to be cautious about it. Ted Baker has highlighted the “extremely difficult trading conditions” it’s currently facing in its latest update. Superdry was the worst hit, showing a sharp plunge in fortunes with a pre-tax loss compared to profits the year before.
High-performing fashion retailer
The one fashion-linked retailer that has been showing standout performance is JD Sports Fashion. From the first time I had written about it at the start of the year to the last close, its price rose by almost 34%. And this is for good reason. The latest trading update is quite positive, with the company reporting encouraging sales growth and the addition of 29 new stores. It’s worth noting that its price-to-earnings ratio at 23x is lower than Burberry’s at 28x. I remain positive on both companies, but if the sharp run-up in Burberry is giving you jitters, I would consider JD for now.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry, Superdry, and Ted Baker. 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.