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Up until 9.30am Tuesday (9 September), the Burberry Group (LSE:BRBY) share price was heading in the right direction. The luxury fashion house’s shares were changing hands for 1.9% more than they were when the market opened. But then everything changed. By the time the London Stock Exchange had closed its doors, the stock had fallen 8.3%. From peak to trough, that’s a swing of more than 10%.
Why?
Big falls like these are usually triggered by a broker downgrade or a disappointing earnings release. Neither of these happened.
In fact, it appears the cause of the drop was, according to Bloomberg, “cautious comments” made by company representatives at an international conference. Exactly what was said isn’t clear. But stock exchange rules require market sensitive information to be released first to shareholders via the official Regulatory News Service. I therefore suspect something has been lost in translation or misinterpreted. Or perhaps investors are being overly cautious.
On the up
Whatever the truth, the fall is particularly disappointing given that the share price has been on a strong rally. It’s done so well — even after today’s fall, the stock’s changing hands for 110% more than it was in April — the group will be re-joining the FTSE 100 on 22 September.
By coincidence, that’s the same day on which Burberry will be showcasing its latest collection during London Fashion Week. It will be interesting to see how the brand’s promise to return to its roots will be received by journalists and other industry experts. To try and reverse falling sales, the company implemented a turnaround plan ‘Burberry Forward’. The underlying principle is to focus on outerwear which is seen as its core strength.
But there’s nothing the group can do to reverse a global slowdown in the luxury fashion market. Instead, it needs to concentrate on getting its own house in order by designing products that customers want to buy, even though many of them are apparently experiencing a squeeze in their incomes.
No need to panic
Of course, savvy investors know not to read too much into short-term price movements, especially those over the course of one day. However, the group’s next scheduled stock exchange announcement isn’t until 13 November. That’s when the group plans to release its interim results. It’s going to be a long wait for anxious shareholders.
But I remain optimistic. A return to the top-flight of UK companies means more funds can invest in the stock. And I think there are a number of reasons why they might want to consider doing this.
The Asia-Pacific region remains the group’s biggest market. And although economic growth for most countries in the territory has slowed recently, the majority are growing faster than any in the West.
Burberry’s clothing and accessories aren’t cheap (that’s the point of a luxury brand) but they’re not ultra expensive. I think this gives it an advantage over some of its rivals.
It’s also recently returned to The Lyst Index of “hot brands“. It’s compiled using data on product searches, global social media mentions and engagement statistics over a three-month period. This suggests the turnaround plan is working.
Recoveries are rarely smooth. Yesterday’s a good example of this. But on balance, I think Burberry’s still a stock for long-term investors to consider.
