Economic Insights

Burberry shares suffer after Profit Warning

Burberry has been forced to recognize that will not meet earnings forecasts due to the strength of the British pound and the fall in sales in Hong Kong. The stock suffers a harsh punishment in the stock market, moving it away from its historic records.

Leeson. 20/05/2015
Burberry S/S 2015. Photo: Mario Testino for Burberry. Make clic to buy
Burberry S/S 2015. Photo: Mario Testino for Burberry. Make clic to buy
Burberry S/S 2015. Photo: Mario Testino for Burberry. Make clic to buy

One year. This is what has lasted the magic of the new Burberry management. Just twelve months ago we mentioned that the famous manufacturer of British raincoats surprised the market with better than expected results, which at that time meant a boost to the new management led by the new CEO, Christopher Bailey.

Today, only 12 months later, the company´s shares suffer its worst decline in this period after publishing a «profit warning», a warning that its results will not meet expectations. The strength of the British pound and the sales fall in Hong Kong are behind the weakness of Burberry. The British company now estimates that its profit of fiscal year ending March 2016 will be about $62 million. Following this review, analysts now estimate that the company´s adjusted gross profit will fall between 5 and 7%, after a decline of 1% during the last fiscal year.

Burberry S/S 2015. Make clic to buy
Burberry S/S 2015. Make clic to buy

With this new scenario, the stock has fallen as many as 6% in the London Stock Exchange. It seems the end of the optimism after the arrival of the new management and the positive results mentioned earlier. Its market value had appreciated by almost 40% to record highs in mid-February. Since then, it has started a downward trend, losing more than 10% of its market value so far.

In defense of the company we can say that none of the two problems, the strong pound and weak sales in Hong Kong, are exclusive to Burberry. Clearly, the drop in sales in the former British colony is a trend affecting the entire industry, while the evolution of the currency is not under their control, although we should mention that Burberry has already taken some measures to mitigate its impact, such as adjusting their prices in China, Hong Kong and Europe (by lowering prices in the first two places and increasing them in Europe) to reduce the differences generated by exchange rates movements.

Burberry S/S 2015. Make clic to buy
Burberry S/S 2015. Make clic to buy

Disclosure: The author is not responsible for the views expressed in the article. The text has been written freely expressing ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.

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