The year 2020 has been a different and difficult period for many people. It was also a time of increased volatility in the markets. Yet hope grows forever.
As the weather gets cooler and days get shorter in the Northern Hemisphere, most people are ready to celebrate the coming New Year with some revelry and some shopping.
That is why today we look at the listed luxury fashion house Burberry Group (LON :), (OTC :).
Burberry & # 39; s Long History
Thomas Burberry founded his eponymous shop in 1856 with the aim of producing "clothing […] designed to protect people from the British weather"
With a market capitalization of approximately £ 7 billion (USD $ 9.4 billion) it is one of the largest retailers in the UK. The group is also known worldwide as sales in the Asia-Pacific region represent more than 40% of sales.
So far, shares are down about 18% in 2020. On December 1, Burberry closed for 1,792 pence (US $ 24.00).
Burberry Group 1-Year Chart.
Burberry was released in mid-November. Sales were £ 878 million (or $ 1.18 billion), down 31% year-over-year (year-on-year). That was a painful drop from the top line.
Similarly, adjusted operating profit declined by 75% and adjusted diluted earnings per share by 88%.
CEO Marco Gobbetti said:
" While the virus continues to impact sales in (Europe, Middle East and Africa), Japan and South Asia Pacific, we are encouraged by our overall recovery and strong response to our brand and product, especially among new and younger customers. "
Would we buy BRBY now?
Despite the positive tone of the interim results and the news that things have improved as stores have opened, we would like to remind investors that In recent weeks, store closings have been seen in the UK, most of Europe and many other countries have been part of efforts to stop the spread of the virus. Lockdown 2.0 can thus mean that the following results can be mixed.
It is also important to remember that the group's misery began before the pandemic affected sales. In recent years, stocks have fallen in and out of favor with many investors.
The Heritage brand became one of the first FTSE 100 names to be adversely affected by COVID-19 as demand in the Asia-Pacific region dropped significantly in the first weeks of 2020. In mid-March, stocks were at lows in several years.
Forward P / E and P / S ratios are 33.67 and 3.13, respectively. In other words, despite the price drop, BRBY shares are still richly valued. For most UK stocks that are not part of the tech sector, those statistics would mean Burberry is one of the most expensive companies.
We believe that a possible decline of about 5% -7% from current levels would provide more long-term value to shareholders.
Potential investors may also want to analyze interim results over a number of weeks, when the group may publish a trading update regarding its holiday sales.
Bottom Line
The growth of e-commerce has caused difficulties for many brick-and-mortar retailers. The economic uncertainty of the pandemic has created even more difficulties for luxury brands such as Burberry.
The fortunes of other UK based retailers have been mixed so far in 2020. For example:
ASOS (LON :), (OTC :): up 36%
boohoo.com (LON :), (OTC :): up 5%
JD Sports Fashion (LON :), (NASDAQ :): down 6%
Next (LON :), (OTC :): 7% lower
If we had to choose from FTSE-listed retailers, we'd probably go strong. We would track the price of ASOS shares for the declines.
On the other hand, the story in retail is slightly different in the US. For example, the index is up more than 42%.
Investors interested in retail stocks during the usually busy shopping season may also want to consider several exchange-traded funds (ETFs) such as the Global X E-commerce ETF (NASDAQ :), ProShares Long Online Short Stores ( NYSE :), the SPDR® S&P Retail ETF (NYSE 🙂 or the VanEck Vectors Retail ETF (NYSE :).
Finally, the iShares MSCI United Kingdom ETF (NYSE 🙂 or the iShares MSCI United Kingdom Small-Cap ETF (NYSE 🙂 may be suitable for those interested in UK listed stocks.
