Burberry Group Plc’s long-awaited strategy update from its new boss failed to convince investors, who sent the shares tumbling the most in five years on concern the trench-coat maker is sacrificing future earnings to sharpen the brand’s image.
The shares fell as much as 14 percent after Chief Executive Officer Marco Gobbetti said the London-based company will add accessories and leather goods and revamp its marketing while investing in store refurbishments. Revenue and the operating margin will be flat in the 2019 and 2020 fiscal years, with 15 million pounds ($19.7 million) of restructuring charges expected in the first of those years, Burberry said.
“Burberry’s premium valuation already discounts an overly optimistic view on brand turnaround potential, of which visibility is still limited,” Bank of America Merrill Lynch analysts led by Ashley Wallace said in a note.
Burberry said it will continue to cut its exposure to “nonluxury” retail outlets as the new chief focuses on fixing Burberry’s business in the U.S., where its brand was diluted by wide availability in department stores and extensive discounting. Creative head and former CEO Christopher Bailey, who’s set to leave next year, had already initiated that change.
“To win with this consumer, we must sharpen our brand positioning,” Burberry said in a statement. “This will require us to change our approach to product, communication and customer experience.”
Gobbetti took over as CEO this year after joining from LVMH’s Celine, where he helped to give the fashion and leather brand an upscale gloss. Burberry’s move to seek a more exclusive image comes after it streamlined its brand lineup, merging the London, Prorsum and Brit names into its main label. The new chief is expected to provide more details of his plans later Thursday.
Gobbetti’s plan could cut earnings by 15 percent a year in the 2019 and 2020 fiscal years, Morgan Stanley analyst Elena Mariani said in a note. The drop in the shares came after the stock rose to a record earlier this week after Kevin Wills, chief financial officer of Tapestry Inc., formerly known as Coach, said the company is seeking strategic acquisitions.
Burberry’s strategy update came as the company reported first-half revenue of 1.26 billion pounds ($1.66 billion), 1.6 percent above the average analyst estimate. First-half revenue rose 4 percent on an underlying basis, above analyst expectations. Growth was strongest in the company’s own stores in the Asia-Pacific region, the company said.
source: https://www.bloomberg.com/news/articles/2017-11-09/burberry-to-add-leather-accessories-as-sales-beat-estimates