Shares in Burberry (BRBY) rallied 6.2% to £18.64 as the luxury retailer upgraded annual profit guidance after seeing an acceleration in higher margin full price sales for the third quarter to 25 December 2021.

The positive performance is was driven by ongoing strength in the Americas, a material improvement in the Asia Pacific region as Covid restrictions eased and improving trends in EMEIA (Europe, Middle East, India and Africa) despite an ongoing lack of tourism.

The trenchcoats-to-cashmere scarves seller now expects adjusted operating profit for the 53 weeks ending 2 April 2022 to grow ‘in the region of 35%’ at constant currency; it has also downgraded the impact of foreign exchange headwinds on sales and operating profit from £100 million to £79 million and from £40 million to £27 million respectively.

HIGHER QUALITY BUSINESS

The FTSE 100 fashion label reported a strong underlying revenue performance in the third quarter, with sales up 8% at constant exchange rates to £723 million versus £688 million for the same period in 2020.

‘Full price sales continued to grow at a double digit percentage compared with two years ago, accelerating from the previous quarter and reflecting a higher quality business,’ insisted Burberry’s chairman Gerry Murphy.

‘Despite the ongoing challenges of the external environment, we are confident of finishing the year strongly and providing an excellent platform on which to build when our new CEO Jonathan Akeroyd joins in April.’

As the world emerges from the pandemic and people start to socialise and travel more, it appears the wealthy are lapping up luxury items, with Burberry the latest name in this space to report buoyant trading.

Burberry’s ability to drive full price sales is testament to the strength of the brand and the appeal of its product offering under creative director Riccardo Tisci.

THE EXPERTS’ VIEW

Russ Mould, investment director at AJ Bell, explained: ‘Burberry is demonstrating its ability to appeal to new and younger consumers which is absolutely critical to the future of the business. And it is selling lots of big-ticket items like leather goods and overcoats. Geographically, it is notable that its performance in the Americas remains strong and the easing of restrictions elsewhere have helped sales recover in Europe and Asia.

‘All of this has been achieved without a full return for the tourism which benefits Burberry’s airport concessions but also its stores in popular destinations in Europe and elsewhere as Asian tourists buy items as part of their trip. The company will be hopeful of this trade returning to some extent in 2022.

‘This should help get ex-Versace man Jonathan Akeroyd off to a good start when he takes over from Marco Gobbetti in a few months’ time.

‘Akeroyd will want to put his own stamp on the business, but he may want to consider an “if it ain’t broke don’t fix it” approach given the strategic progress under Gobbetti.’

Russell Pointon, director of consumer and media at Edison Group, commented: ‘Comparable store sales were down 3% versus Q3 2020, while the firm’s £150 million share buyback is well advanced and on course for completion before year end.

‘Annual profit is likely to beat market expectations with adjusted operating profit for the year to 3 April to rise by about 35% at constant exchange rates, which is higher than consensus.

‘Looking ahead, despite economic uncertainty, there is confidence of seeing out the year well to give incoming CEO Jonathan Akeroyd a solid platform to build on.’

Disclaimer: The author and editor of this story both own shares in AJ Bell, owner and publisher of Shares

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Issue Date: 19 Jan 2022