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Burberry (LSE: BRBY) posted full-year results Wednesday (14 May) and the share price jumped. At the time of writing it’s up 20% since market close on the day before the results. Is the struggling fashion retailer heading back to its previous heights?
According to CEO Joshua Schulman, it’s all about “Burberry Forward, our strategic plan to reignite brand desire, improve our performance and drive long-term value creation.” But we’re not seeing results at the bottom line yet, as the company recorded an earnings per share (EPS) loss of 21p. Adjusted operating profit was just positive at £26m, but way down from the £418m in the 2024 fiscal year.
Even after scratching my head for a couple of days, the reason for the renewed optimism eludes me.
Where’s the beef?
The immediate outlook for the current year doesn’t sound very upbeat, as “the current macroeconomic environment has become more uncertain in light of geopolitical developments.“
A cost savings programme delivered £24m in the year just ended. And the board expects a further £60m in savings by 2027, which is better than previously hoped. But we should expect one-off costs to arise from the new plan of around £80m. And it sounds like there’ll be quite a few redundancies too.
The rest of the recovery hopes seem to be pinned on a plan to “reset the brand storytelling, enhance visual merchandising in stores and online, and align product focus to our core categories.” And it will “broaden appeal,” and deliver “a step change in performance.“
Without mentioning Burberry, I asked ChatGPT to suggest how a struggling fashion brand might explain its turnaround plans. It suggested “it’s important to communicate transparency, renewed vision, and a customer-first focus — all while maintaining brand style.” And it spoke of “changing direction,” “getting back to what matters” and things like that.
Any similarities between the two sets of marketing strategies are, I’m sure, coincidental.
What next?
Still, the share price had been down more than 65% from its 2023 high point before the new results boost. After such pain, maybe investors only need some modest optimism to get excited again.
And I reckon it could be a very poor move to write off the global power of the resilient Burberry brand. Whatever the company is actually doing, and whatever the numbers currently say, it’s one of the most widely-recognised global fashion brands.
Forecasts don’t show a return to positive earnings until 2026. And then it would only be a small one. If they’re right, we’d have to wait until 2027 for enough to get the Burberry price-to-earnings (P/E) ratio down to 22. Even that’s not obviously screaming cheap.
Still, the CEO is “more optimistic than ever that Burberry’s best days are ahead.” Burberry could definitely be worth considering for investors with a long-term view and who share his optimism.
And I’d never rule out its chances of bouncing back. But until I see numbers I like, it’s not going to be one for me.
