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Burberry set to wait out another year

Burberry shares have continued to grind lower well into Thursday’s session

At 5.5% lower, just now, it’s their second biggest drop of the year. A less sure-footed economy in China is coinciding with a capital expenditure ramp of 50% in 2019, hitting margins. But the confluence is no surprise. CEO Marco Gobbetti laid out plans to go further upmarket two years ago. Symbiotic ties to the developed Asia-Pacific go back far longer. Yet Burberry shares rose 17% off January lows before reversing last month. It is hopes that were pinned on revived brand appeal after the arrival of a new Chief Creative Officer—a hallowed role at Burberry—that now appear most precipitate.

Customer reactions to Riccardo Tisci’s first collections were “very encouraging”, though only enough to lift China revenues by a low percentage, way behind rivals, and not enough to stop core earnings decelerating into the second half.  Ahead-of-plan savings will help safeguard margins in the year ahead. Rolling-out Tisci collections from 10% to 75% by year end should offer maximum exposure. And China at least looks to have stabilised; even if worries are now cropping up elsewhere in APAC, the U.S. and Middle East. Yet with shares slumping and 2020 guidance unchanged it is clear investors fear Burberry has missed another year of potential inflection.

Chart thoughts

The stock’s emphatic retreat from 2019 highs was in step with much of the global market. But the follow-through, below the 200-day average and the lower side of a large rising wedge, symbolise disappointment that’s mostly Burberry’s alone. Oscillators gauge the downtrend since 2040p on 30th April as oversold. Visually, sharp and lengthy daily candles portray momentum that could keep prices falling for a while yet. Investors will use the 25th March swing low of 1815p as the next test, ahead of 78.6% of the January-to-end April lift. 1611p looks the most solid to me, which would extend the drop by around 11% at last check. It was the March 2018 launch point to a forlorn record high five months later. BRBY stopped just short of that low following the winter plunge; it could continue to haunt.

Price chart: Burberry CFD – daily

Source: Tradingview/City Index

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