More on Burberry
Burberry Q1 trading statement
Burberry’s sales continued to grow, with the level of growth (9%) and the pattern of growth both very similar to last year. Growth in (high margin) licensing revenues was even stronger (up 26%) but Burberry does not expect this strong growth to be sustained.
Growth in Burberry’s retail revenues continues to come largely from expansion. While there is nothing wrong with expansion per se we wonder about how much room a luxury retailer has to grow even given its appeal in the expanding markets of Asia. We also see some risk of eventual dilution of the Burberry brand through its continued extension and expansion (more retail sales, more wholesale sales and more licensing revenues).
There is no organic growth in Burberry’s wholesale sales and the 5% increase there is driven by a recent acquisition.
At a prospective PE of around 17× and a 1.6% yield, Burberry is not cheap for a retailer. The high growth in licensing revenues means a further improvement in the sales mix and therefore margins in the first quarter but further margin improvements look for difficult. Continued expansion of retailing and the continued, if slower, growth in licensing, should drive medium term growth and the evident room for expansion in the US and the expanding markets of Asia should drive long term growth. We do have reservations; the company’s reliance on a single brand which could be easily diluted and the apparent lack of like-for-like sales growth (and Burberry’s failure to actually disclose this) being the most important.
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