Brexit Helps Burberry … But Not Enough

Although Burberry is a British firm, the fact is that most of its sales come from outside, especially from Asia. As it accounts its results in pounds, the figures should skyrocket as this currency is worth about 20% less than a year ago against foreign currencies in which derives its income (€, $, ¥, other Asian currencies …). Adding higher purchases from tourists visiting the UK and the conversion into local currency of sales achieved in other currencies should mean an important positive impact, which the company itself estimated at £125 million for the full year.

However, this scenario has been obscured by falling sales. Sales in Hong Kong, which is almost 10% of its total business, have declined more than 10% in the fiscal first half. Also, the company has already warned that in the second half of its fiscal year the wholesale business in the region will fall further, by around 15%. The company has tried to mitigate this negative trend in sales with declining prices, but so far it has not achieved the expected results.

Meanwhile, in the United States, its wholesale sales drop reached 25%, and expectations do not feed an improvement for the second half of the fiscal year as Burberry seems to be more focused on controlling costs that in finding new formulas to grow. The good news came from the UK, where sales rose 30% thanks to purchases of tourists since the fall of the pound has meant that its products are much cheaper for foreign visitors. This market already accounts for 15% of Burberry´s total retail sales, five percentage points more than twelve months ago.

Burberry is suffering more than other competitors. In recent weeks, rivals such as Estee Lauder, LVMH or Jimmy Choo have presented solid results, which in turn had fueled investor expectations about Burberry. Its stock price rose almost 50% since mid-June driven by the Brexit, thanks precisely to the expectations generated by the fall of the pound. These results have now broken the uptrend. Today the company´s value is 25% lower than at the beginning of 2015.

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