Burberry FY preview: Where next for the Burberry share price?

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Josh Warner
By : ,  Market Analyst

When will Burberry release FY2022 earnings?

Burberry is scheduled to publish its full year earnings covering the 12 months to late March on the morning of Wednesday May 18.

 

Burberry FY earnings preview

Burberry will report the first rise in annual sales in five years when it releases results this week. Analysts forecast revenue will rise over 20% year-on-year to £2.82 billion and comparable store sales growth is pencilled-in at 18.7%.

 That is thanks to a recovery in demand following a collapse in retail and wholesale demand in 2021, as well as higher prices. Burberry has been working hard to rebuild its brand and is starting to deliver results by having tighter control over inventory and improving the sales price of its goods.

The strong sales growth, twinned with improved margins thanks to the focus on pricing, is expected to see adjusted operating profit jump over 31% to £519.6 million while adjusted EPS at the bottom-line is expected to rise over 40% year-on-year to £0.95.

That has provided a solid foundation for its new CEO Jonathan Akeroyd, who took over at the helm in April. We could see the new boss refresh and build-upon Burberry’s success this year, which has also been helped by a renewed focus on younger consumers that has introduced the brand to new clientele that have embraced its digital strategy. Its new store concept will continue. Only 31 stores were using its new design as of January, but this should have risen to 50 by the end of March.

But there are still big challenges ahead. The situation in China, where Covid-19 is still causing severe disruption, is the main headwind. China is one of the company’s largest markets and accounted for around 40% of Burberry’s sales before the pandemic hit. Fresh lockdowns may have weighed on demand from March onwards and tempered the outlook for the new financial year. The fact markets believe adjusted operating profit will rise just 31% in the year compared to the 35% growth pencilled-in by the company back in January shows the size of the impact that analysts expect. Another fear is that severe disruption could start to hit prices again and force inventory to be sold at markdown prices, which would represent a disappointing U-turn for the company that has been striving to make the firm more upmarket through higher prices.

Meanwhile, the impact of its decision to temporarily shut stores in Russia and cease shipments to the country in protest against the country’s invasion of Ukraine will also be in play. It only has three stores in Russia but the general disruption to supply chains could have a greater impact.

These threats could overshadow the strong results as they could raise fears surrounding the outlook. Last week, Italian leather goods brand Salvatore Ferragamo – the company that poached Burberry’s last CEO Marco Gobetti - revealed it beat expectations in the first three months of 2022, but it did report a decline in sales in China as the latest Covid-19 restrictions started to bite. That has followed other luxury brands, from Gucci to Moncler, that have warned uncertainty lingers over this year because there is no sign that the situation in China is set to improve anytime soon.

Notably, Burberry and other luxury stocks may prove resilient at a time when inflation is running rampant and consumers become cost-conscious. Buyers of expensive luxury goods should prove more immune to the cost-of-living crisis and the industry is far better-placed to pass on higher costs to customers without impacting demand – an important factor considering the main driver of Burberry’s improved performance this year is down to its focus on pushing up prices and improving the quality of its revenue.

Burberry is one of the last remaining luxury brands that remains independent and yet to be swallowed up by a larger group and some have suggested this could change if Akeroyd proves successful and makes Burberry attractive to potential suitors, although the uncertainty lingering over the luxury sector may prevent any interested parties making a move, at least for now.

 

Where next for the BRBY share price?

The stock has recovered back above the lows seen in March and April of 1,545p and this should be treated as the initial floor for the stock which, if it fails to hold, brings the 17-month low of 1,473p back into play. A move below here could be more significant as it reopens the door the volatile levels seen when the pandemic hit in 2020, first to the November 2020 low of 1,325p and then the July 2020 low of 1,231p.

On the upside, the stock needs to break out of the downtrend that has been in play for six weeks before it can try to recapture the 50-day moving average at 1,617p and then the 100-day moving average at 1,743.5p, roughly in-line with the peak seen in late March. A move above there could be more significant as we could see it swiftly rebound toward the 200-day moving average at 1,820p and move back above the 2022-peak and breach the 2,000p mark again.

The 25 brokers that cover the stock believe the heavy selloff over the past year has been overdone and think the company can rise over 29% over the next 12 months with a target price of 2,019p, just below the 2021-high.

 

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