Mid adult man using a smart phone to monitor his cryptocurrency and stock trading. He is in his small jewellery workshop.
Holders of Burberry (LSE:BRBY) shares may have been quietly confident before today’s (18 July) latest trading statement. After all, the luxury goods giant’s shares leapt on its latest update in May when revenues beat forecasts.
As it turns out, investors were right to be hopeful. At £13.35 a share, Burberry’s price was 6.7% higher on Friday as I wrote this after sales topped estimates again. It touched its most expensive level since February 2024 earlier in the session.
On the one hand, the FTSE 250 firm’s end-of-week update was a familiar story of further sales declines. But signs of early progress for its ‘Burberry Forward’ turnaround plan have fuelled hopes that the luxury laggard is well on the mend.
Signs of progress?
During the 13 weeks to 28 June, Burberry’s sales dropped 6% to £433m, or 2% on a constant currency basis. In what the company described as a “challenging” trading landscape, it said comparable store sales dropped 1% in the period.
Still, this was far better than the 21% decline posted in the corresponding 2024 period.
Performance remained mixed across its regions. Sales in Asia Pacific declined 4%, with strength in South Korea being more than offset by trouble in Japan. Greater China revenues dropped 5%, and Mainland China sales were down 4%.
But new customer growth pushed sales in The Americas 4% higher. In the Europe, the Middle East, India, and Africa (EMEIA) region — where “local spend [offset] declines from tourists” in the quarter — sales edged 1% higher.
Chief executive Joshua Schulman said that “although the external environment remains challenging and we are still in the early stages of our transformation, we are encouraged by the initial progress we are starting to see.”
Big questions remain
Launched last autumn, Burberry’s transformation strategy includes priorisiting its traditionally-strong outerwear lines like trench coats, and re-emphasising its classic British luxury roots, to boost sales.
The last couple of trading statements show that the plan’s making good early progress. But does it justify the 60%+ rise in Burberry’s share price since May’s encouraging full-year financials? I’m not so sure.
As well as being in the early stages of its turnaround, its said “the macroeconomic environment remains uncertain“.
I remain concerned about further sales slips in China and the rest of the Asia Pacific region. It’s by far the company’s single most important territory, being responsible for roughly 42% of group sales. Uncertainty here remains high, with the aggressive US trade policy threatening future consumer demand.
Burberry also still needs to prove its brand can stand out in what’s an increasingly crowded luxury market.
Too expensive?
I don’t feel that these questions are reflected in the company’s high valuation. Recent price gains leave it trading on a forward price-to-earnings (P/E) ratio of 69.5 times
At these levels, Burberry shares could correct sharply if progress on the turnaround slips, a very real scenario in my book. On balance, I think investors should consider leaving this high-risk share on the shelf.
