More on Burberry
Burberry trading statement
Sales growth continued to slow and for the second half as a total sales were up 6% at CER, retail and wholesale sales in the fourth quarter were in line with the third quarter but growth in (much higher margin) licensing revenues fell to similar levels (licensing had been growing much faster) so it does not appear likely that the mix would have improved much in the fourth quarter.
Retail sales growth continues to be driven by new openings, although Burberry has not condescended to disclose LFL retail sales numbers in this trading statement is appears likely to be significantly (a few percent) negative. Although Burberry states that fourth quarter performance was “consistent” with the third quarter the year-on-year performance seems to have been significantly weaker.
In both retail and wholesale the established UK and US operations performed fairly weakly but continental European and Southeast Asian sales have been much stronger.
The weakening of licensing revenues may be signs of a weakening of the brand, an ever-present concern with a company that is wholly dependent on the strength of a single brand - especially with companies like Burberry which sells a brand rather than products. The statement lists several drivers but without more detailed information it is not really possible to separate the drivers, and hence judge any implications for the strength of the brand.
A similar rate of expansion of retail space is planned for next year, Burberry expects wholesale revenues to be flat and the problems with licensing may well continue - although the visibility on the last is limited.
The prospective PE of 18× is not cheap against the sector. High earnings growth justifies the rating but with the slowdown in sales growth we are far from certain that high sales growth is sustainable. The short term growth is sufficient to bring the rating down to more reasonable levels - the current price of 394p is 16× 2006 earnings.
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