Burberry today reported 4% constant-currency retail sales growth in the first quarter, driven by a 5% increase in comparable retail sales. While the results were in line with market expectations and consistent with the previous quarter’s performance, shares fell around 6% in early trading as investors focused on the lack of sequential improvement in growth.
Jelena Sokolova, senior equity analyst at Morningstar, provided the following insight: “Burberry delivered a solid first quarter, with retail sales growth of 4% and comparable sales growth of 5%, broadly in line with expectations. The results suggest the strategic changes introduced under CEO Joshua Schulman are having a positive impact, although there was no sequential acceleration from the fourth quarter.
“The Americas remained the strongest-performing region, with sales growth accelerating to 12%, while Greater China delivered another quarter of solid growth. Given the importance of Chinese consumers to the luxury sector, these trends are encouraging, although it remains too early to conclude that a broader recovery is firmly established.
“Performance in EMEA was affected by disruption in the Middle East and weaker tourist flows, masking more resilient local demand. Overall, the results support our view that Burberry is moving in the right direction operationally.
“We are maintaining our fair value estimate of GBX 1,370 as the update was broadly in line with our expectations. At current levels, we continue to view the shares as undervalued.”
