Burberry shares on the slide as profit falls

Added 18th May 2016

Burberry Group shares slid over 5% this morning after the clothing and handbag maker reported a big drop in profits.

Burberry shares on the slide as profit falls

The company said it had recorded adjusted profit before tax down 10% to £421m. Revenue held steady though, falling just 1% to £2.5bn.

Burberry’s principle response to this situation was the launch of a new three year cost cutting drive, aiming to shave £100m from its operations.

A full year dividend of 37p was announced, up 5%. The company also plans to carry out a share buyback of up to £150m starting in its 2017 financial year.

Baillie Gifford, Fidelity, HSBC Global Asset Management and Lindsell Train are the asset management firms among the top ten shareholders in Burberry.

CEO Christopher Bailey said: "While we expect the challenging environment for the luxury sector to continue in the near term, we are firmly committed to making the changes needed to drive Burberry's future outperformance, underpinned by strong brand and business fundamentals.”

“We continue to see significant opportunities ahead of us and have put ambitious plans in place to increase future revenue, enhance productivity and create a more efficient organisation,” he added.   “In addition, the capital allocation framework announced today prioritises the investment needs of the business and regular dividend payments to our shareholders, while balancing capital efficiency and flexibility."

The Share Centre investment research analyst Helal Miah recommended investors hold tight.

“Burberry indicates that 2017 profits are likely to be at the bottom end of its range after announcing the second straight fall in annual earnings,” he said. “Adjusted pre-tax profits fell 10%, which is only slightly higher than analysts’ expectations. Pressure remains on Burberry to turn things around after sales in Hong Kong have fallen 20% in three straight quarters and spending in Europe and the US remains soft.”

“Investors will note that Burberry has announced an ambitious three year plan to deliver at least £100m a year in cost savings. However, the difficulties highlighted in today’s results are only likely to put more pressure on its CEO, with some analysts and investors starting to question his ability to lead the company. The slowdown in China is still concerning and is the key reason we maintain our ‘hold’ recommendation on the stock.”

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Alex Sebastian

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Alex joined Portfolio Adviser in April 2014 and has been a financial journalist since 2008. He has previously held editorial positions at the Financial Times Group and Euromoney Institutional Investor. Alex is NCTJ qualified and has a degree in economics from the University of Sussex.



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