The Motley Fool

Why I believe Burberry will outperform in 2020

When I started writing for the Motley Fool last year, the first company I ever wrote about was the FTSE 100 luxury brand Burberry (LSE: BRBY) after its price had fallen sharply. From then to the last close at the time of writing, the share price has risen by almost 24%. And it’s not just a single year of share price increase, it has risen almost 50% over the past five years as well.

Performance under pressure

With this past performance, as well as positive future prospects, I reckon that 2020 will be another good year for BRBY. Its latest results, released earlier this month, showed growth in revenues and double-digit operating profit increase, which I find impressive because a sluggish macroeconomic environment can have the biggest impact on the consumer discretionary segment.

And at present, the economy is nothing if not sluggish. The International Monetary Fund (IMF) expects global growth to be at its lowest level this year since the great recession of 2008–09. The Brexit limbo, US-China trade war, and the Hong Kong protests are all part of the mix that’s affecting business and growth around the world.

All these economies embroiled in challenges are also important markets for Burberry. In fact, in its latest release, it noted that it has achieved the results “despite the decline in Hong Kong”. Global growth is expected to be better next year, and if Burberry has performed now, it should continue to do so in 2020 as well.

Setting itself up for growth

One of the driving forces for Burberry’s recent growth is Riccardo Tisci’s collections, who joined as chief creative officer last year, after spending over 10 years at Givenchy. As per the latest results, his collections have shown double-digit growth and now make up 70% of the store offerings.

I imagine Tisci’s performance is a relief for Burberry, who replaced Christopher Bailey after a time of uneven growth for the company.

Management changes, especially those that accompany re-structuring, are inherently risky, but this one is paying off for BRBY so far. If things continue on this path, the company can continue to see good times ahead as well.

Outlook positive

While Burberry is cautious about the persistent geo-political uncertainty, it has still confirmed its outlook for 2020. Specifically, it expects “broadly stable top-line and adjusted operating margin”, and this after accounting for the unrest in Hong Kong.

I also like that it’s sorted on the Brexit front, saying that it’s prepared for a no-deal Brexit and has “plans in place” to limit its impact on business.

In a nutshell, it’s confident despite operating in a vulnerable sector at a challenging time. In other words, it aims to succeed despite roadblocks and will probably see even higher gains if the situation stabilises soon, making it a win for investors.

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry. 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.