One of Britain’s most famous luxury brands, Burberry (BRBY), bounced 4.7% higher to £21.56 on Thursday to top the FTSE 100 leader board. The jump in the share price comes as the company delivered forecast-beating first half results showing that it has managed to largely shrug-off the political disruption in Hong Kong.
Chief executive Marco Gobbetti’s strategy of enhancing margins by taking the trench coats-to-handbags seller further upmarket is paying off, chief designer Riccardo Tisci has built on his solid start at Burberry, while a social retail tie-up with China’s Tencent augurs well for the long-term growth of the brand.
SOLID SHOWING
For the half ended 28 September, Burberry achieved an 11% surge in pre-tax profit to £193m on sales up 5% to north of £1.28bn, despite a double digit decline in protest-stricken Hong Kong. Thankfully, fashionistas flocked to the brand everywhere from China, Korea and Japan to the UK, Continental Europe and the US.
Encouragingly, retail like-for-like sales rose 4% with growth accelerating in the second quarter, as new collections from former Givenchy star designer Tisci generated delivered strong double digit growth.
Russ Mould, investment director at AJ Bell, said: ‘Tisci’s predecessor Christopher Bailey, who successfully transformed the company into one of the world’s biggest luxury brands and even served a stint as chief executive, was a hard act to follow. The early signs suggest Burberry got this crucial decision right.
‘The creative side might be the more interesting part but Burberry still needs to get the boring bits in order too. That means making sure its distribution is up to scratch and getting the right products stocked in the right locations to reach its customer base.’
TIE-UP WITH TENCENT
A brand famed for its Equestrian Knight Device, Burberry Check and focus on social media engagement, Burberry insists social media and store experiences are playing an increasingly important role in inspiring luxury consumers. In response to this, the London-headquartered company has entered into an exclusive partnership with Tencent to develop social retail in China.
‘Together we will pioneer a concept that blends social media and retail, creating digital and physical spaces for engaged communities to interact, share and shop,’ explained Burberry. ‘This partnership will begin with Burberry opening a social retail store in Shenzhen, China in the first half of next year, powered by Tencent technology.’
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Reassuringly, Burberry also maintained full year 2020 guidance for ‘broadly stable’ sales and adjusted operating margin, although it also expects to encounter further pressure on gross margins due to the ongoing flare-ups in Hong Kong.
Investors were also treated to a 3% increase in the half-time payout from Burberry, which closed the period with £670m net cash in the coffers, even after stumping up for dividends and buybacks.
