How will Burberry's share price fare post Q4 results?

Share price rally has stalled, will results help the stock out of its range?

Stocks (3)

Friday 22nd May

What to expect ?

To say its been a turbulent year for the luxury retailer would be an understatement. With the US – Sino trade war, Hong Kong protests and now covid-19 to deal with, we can expect the results to reflect this.

That said, Burberry’s behaviour through lockdown paints a picture of a company with financial resilience. Burberry has donated 100,000 PPE items to NHS, provided a base line salary for all UK workers who can’t work from home without government support, whilst senior staff have taken a 20% pay cut.

Retail sales slump
Retailers doors remain firmly shut in Europe and US owing to the coronavirus outbreak. Demand for luxury goods has also evaporated. The fact that Burberry has retooled a factory for PPE suggests that they don’t expect demand to pick up anytime soon.

According to the Office of National Statistics retail sales slumped by 5.1% in March, in the biggest decline in sales in the series 23-year history. Expectations are that retail sales in April will be even weaker as lockdown measures caused demand to vanish.

In late March Burberry released an update warning that it expected a 70% - 80% fall in sales in the final two weeks of March owing to coronavirus temporary store closures. Burberry also said that it expected this deep decline to result in a 30% fall in overall Q4 sales. After the firm quantified the expected hit to sales, the share price started to rise. There is nothing traders hate more than the unknown

Asia - China
Its impossible to look at Burberry without looking at China. China’s sales account for around 40% of total sales for Burberry. Hong Kong protests feel like an eternity ago, but they will have had an impact on sales as will the coronavirus lockdown in China at the start of the year.
Store in Asia are starting to reopen. Investors will be keen to hear how the reopening has been going in an attempt to gauge what can be expected from Europe and the US as lockdown measures are eased and stores reopen. According to China Luxury Advisors an independent consultancy, luxury consumer confidence is still down.

Online Sales
Internet sales will also be closely eyed. These will give an idea as to whether customers shopping habits shifted to the internet during the lockdown or whether consumer decided to hold off from luxury purchases altogether.

It is also worth considering that the UK, Europe and the US are all heading towards a recession of historic proportions. Luxury items are unlikely to be top of many people’s shopping lists until there is more clarity over the economic outlook and until they have more job security. A quick rebound appears to be off the cards. 

Strong brands the other side 
Research has indicted that those firms with a strong brand tend to recover more quickly from economic downturn. This is because in times of turmoil, those competitors with weaker brand cut advertising spend, reducing brand awareness There is no denying that Burberry has a very strong recognisable brand and given the challenging outlook, Burberry’s brand should work in its favour versus competitors.

Chart thoughts
After picking up from the March low, Burberry’s recover stalled in early April. The stock has been trading within a familiar range of 1250p – 1500p for the past 6 weeks. It trades just marginally above its 20 & 50 sma on the 4 hour charts. 
Even if results do disappoint, a break below 1250p would be need for a more convincing move southwards.

More from Equities

From time to time, GAIN Capital Australia Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.