Burberry shares stormed higher in hopes that a fresh strategy update announced today will spark a turnaround in the fashion brand’s fortunes after the group revealed a 20% drop in revenue in the last half-year period.
The sharp decline in sales is bordering on catastrophic for the brand after years of spluttering sales growth and criticism about its appeal and market positioning.
The new ‘Burberry Forward’ strategy has provided investors with a lifeline, hinting that Burberry is returning to its roots and refocusing on the brand image it is traditionally known for.
“Burberry has announced a strategy update in an attempt to reignite desire for the quintessentially British brand. The plan is to return focus to the brand’s origin – outerwear. Newly minted CEO Joshua Schulman plans to tap into the brand’s heritage to regain its footing in this category, before expanding into other areas,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.
“But it’s a careful balance, and Mr Schulman won’t want to make the same mistake as his predecessors of skewing Burberry’s offering to a narrow base of luxury customers at the expense of a loyal fanbase.”
The gains in Burberry shares on Thursday can be attributed almost entirely to hopes of a turnaround, as there was very little to get excited about in recent results.
“Back to recent performance and it was a painful read for investors,” Chiekrie said.
“Revenue fell at double-digit rates as the group saw declines across all regions, which meant Burberry slipped into loss-making territory over the first half. Cost cuts are underway to try and stem some of the financial bleeding, with £25mn of excess material set to be trimmed from the expense line this year. But with no full-year guidance given, it’s unclear whether it can return to profit in time.”
Burberry is now nothing but a recovery play. The question is whether the ‘Burberry Forward’ strategy has what it takes to fuel this recovery.