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Burberry sceptics abound as execs seek long-promised turnaround

Burberry shares have fallen 4.6% this year through Monday and are at about the same level as in mid-2017.


BURBERRY Group chief executive officer Marco Gobbetti and star designer Riccardo Tisci may be the saviours who finally deliver on the UK trench-coat maker's long-promised turnaround. Analysts however aren't buying it yet.

Burberry is running neck and neck with Hermes International for the dubious distinction of being the lowest ranked by analysts among Europe's 10 biggest luxury and apparel stocks, according to data compiled by Bloomberg. The stock has 16 hold recommendations, four sells and only three buys, the data shows.

Shares of Burberry have fallen 4.6 per cent this year through Monday and are hovering at about the same level as mid-2017, when Mr Gobbetti took the helm of the London-based company. Protracted weakness in the share price could end up making Burberry a takeover target, some analysts said.

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The share performance and analysts' scepticism show that the new team hasn't yet convinced the market that it's given Burberry the boost it needs, just as the broader luxury industry faces the prospect of slowing economic growth globally and weaker demand from Chinese consumers.

"Gobbetti has inherited a very challenging situation," Flavio Cereda, an analyst at Jefferies International Ltd, said in a telephone interview. "If all goes well, there could be some positive signals at the end of next year, but in a market that's slowing down, the risk is that it takes longer."

Mr Gobbetti has pulled together a good team and is making the right choices, with Burberry starting to address its distribution problems, said Mr Cereda, who has a hold rating. Still, the company's supply chain remains weak and brand heat on social media, considered an indicator of future performance, remains a question mark, he said. Another issue is the delay with which Mr Tisci's creations will hit stores.

"Timing is the big issue. Tisci's debut collection isn't available in stores yet and will just start meaningfully contributing to performance towards the end of next year," Jelena Sokolova, an analyst at Morningstar who also has the equivalent of a hold rating on the stock, wrote in an email in response to a Bloomberg query.

The stock rallied after Mr Tisci's appointment was announced Mar 1, reaching a high on Aug 28, before heading down again in October amid a global market rout tied to investor worries that China, a key engine of growth, was cooling off. If there's no revival in the share price, an acquirer could pop up, Mr Cereda said.

Burberry has told analysts that they will need to be patient. Mr Tisci's debut runway collection will start appearing in stores in February and from May, all new deliveries will be his design, the company has said.

"At this stage, our strategic focus is on igniting brand heat - starting with influencers and key opinion leaders, which will cascade to all consumers - and I'm pleased that we have started to make some good progress on this front," Mr Gobbetti said on a conference call last month.

"But as you know, shifting consumer perception, transitioning product, and transforming our distribution will take time."

There's "no rush to get involved" with Burberry shares, HSBC analyst Antoine Belge wrote in a Dec 3 note. "In 2019, we think the British brand will still be too fragile." He upgraded the stock to hold from reduce in October. BLOOMBERG