Morningstar | Burberry's Sales Show Early Signs of Tisci's Appeal With Asian Consumers; Maintaining FVE
We are maintaining our fair value estimate of GBX 1,860 for narrow-moat Burberry, as the company reported improving quarterly retail sales. Group sales were up 2% and comparable sales were up 4% at constant currency. This compares to our expectation for a 1.5% annual growth rate and broadly stable revenue and margin in management’s full-year guidance. Burberry continues to reduce its nonluxury distribution channels, which has a dampening effect on sales, but we believe this is good for long-term brand elevation.Management highlighted strong double-digit growth of Riccardo Tisci’s collections, which contributed around 35% of revenue over the quarter on average (starting from 10%-15% and increasing to 50% in the end of the quarter). Tisci collection contribution is expected to increase to 75% by the end of the year, providing a more meaningful uplift to performance in the quarters to come. The remainder of product range, namely the iconic products, will be tackled by the new designer thereafter.
The current results are an encouraging sign for the new creative direction, and we’re comfortable with our forecasts for 8%-8.5% revenue growth in fiscal 2021 and 2022. Since space growth is limited, retail productivity should improve, so we expect margins to improve to over 20% over the medium term from 16% in fiscal 2019. However, we believe that the turnaround potential is currently reflected in the stock price and would recommend investors wait for a better entry point.
Reception of Tisci’s collections has been especially strong with the key Chinese clientele--Chinese buying globally was up high single digits, from low single digits over the past year. Repatriation of Chinese demand is continuing (Burberry saw mid-single-digit growth in mainland China in the quarter).
Burberry Group designs, makes, sources and sells luxury products under the Burberry brand. Co.'s products are for women, men and children and include apparel, accessories, and beauty. Co.'s products are sold globally through its directly operated store network and online at Burberry.com, as well as through franchisees and third-party retailers, both offline and online. In a few selected areas such as Eyewear and Beauty, Co. uses the product and distribution capability of licensing partners. Co. operates in three regions: Asia Pacific; Europe, Middle East, India and Africa; and Americas. As of Mar 31 2017, Co.'s store portfolio had 469 directly-operated stores and 48 franchise stores.
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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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