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22 May 2020

Another One Bites the Dust – Burberry cuts its dividend and warns of future uncertainty

Saul Fulda, Investment Analyst
22nd May 2020
 
The designer brand, famous for its heritage check trench coats, is repelling the wider demise of the retail sector. The group reported revenue of £2.63bn, 3% lower than last year, but still beating FactSet’s estimates of £2.62bn, while adjusted operating profit came in 1% lower at £433m, again topping the expected figure of £337m.

With 50% of stores closed, Burberry is expecting disruption to continue into June, but cancelling the final year dividend would appear to be a prudent decision, which will boost liquidity. Moreover, news that UK retail sales suffered a record fall in April should not worry Burberry, whose tremendous brand-strength, together with its robust balance sheet, which includes over £850m of cash, will steer the business through this short-term pain.
Despite the near-total lockdowns, year-to-date sales in China and Korea are already ahead of last year, indicating a trend which may spread to the West; fashion-hungry shoppers may be desperate to spend once the stores re-open. Additionally, although a global recession is all but guaranteed, we should bear in mind that Burberry’s clientele is generally immune from the wider Macroeconomic environment, while the business has shown initiative in exploiting the current situation with its best-selling tracksuits.

This, alongside the group’s strong ethical edge, which has seen its factory in West Yorkshire produce non-surgical masks and gowns, and its supply chain make emergency deliveries of medical equipment, should please shareholders and the wider fashion world. A rough road certainly lies ahead, but Burberry are well placed to withstand these troubling times.

Please note that investments and income arising from them can fall as well as rise in value and you may lose some or all the amount you have invested. Past performance and forecasts are not reliable indicators of future results or performance. Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the companies mentioned.
 
Another One Bites the Dust – Burberry cuts its dividend and warns of future uncertainty
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