Burberry Group plc Ordinary Shs 0.05 (BRBY)

Company overview

Burberry Group PLC is a British luxury fashion house, manufacturing clothing and fashion accessories. Its distinctive tartan pattern has become one of its most widely copied trademarks. The company has branded stores and franchises around the world and also sells through concessions in third-party stores. It runs a catalogue business and has a fragrance line. HM Queen Elizabeth II and HRH, the Prince of Wales have granted the company Royal Warrants. Burberry's trademark products are its fashionable handbags and exclusive fragrances. Burberry is quoted on the London Stock Exchange and is a constituent of the FTSE 100 Index.

HL Comment (17 January 2012)

FTSE 100 constituent and luxury fashion retailer Burberry recently reported (17 Jan) third quarter sales that exceeded analyst expectations. In the last quarter of 2011, total revenue rose 22% to £574 million over the same period in 2010. Retail revenues, which contributed more than 70% of quarterly revenue rose 23%, with outperformance evident in the group's London, Paris, Beijing and Hong Kong stores. Sales of coats and leather bags were also strong and drove half of growth over the period. Knitwear, men's' accessories and aftershave also performed strongly. Wholesale revenue climbed 15% to £130 million and licensing income rose 12% to £27 million. For the second half, Burberry said it expects wholesale revenue to increase by a mid-single digit percentage at constant exchange, repeating a previous forecast. Management added that it remained "focused on executing its proven core strategies to achieve long-term sustainable growth, while staying mindful of the challenging macro environment".

Negative Points:

• Burberry's results are exposed to changes in demand for luxury goods, which in turn is reliant on the health of the external economic environment, the stock market and local consumer confidence.
• A large proportion of Burberry’s sales is related to tourism (in particular to Japanese tourists) and is therefore exposed to changes in international tourist flows.
• Burberry has a much higher exposure to apparel and therefore fashion and inventory risk over other luxury goods companies.
• The Burberry brand's appeal could begin to fade.

Positive Points:

• The group's latest sales figures provide a good indication that the company's plan to survive the financial crisis by focusing on flagship markets has so far been successful.
• Burberry opened a new flagship store in Paris and a third shop in Sao Paulo in Brazil during the period.
• Founded in 1856, Burberry is one of the world’s most recognised fashion brands.v
• At 31 December 2011, Burberry had 189 retail stores, 208 concessions, 46 outlets and 56 franchise stores.

Consensus:

On balance, market consensus indicates a buy.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: British pound.