Burberry: Trading Update Provides Good News

Stock Price: 565p
Conclusion: Trading update leads us to upgrade our F10 estimate by 5.6%. Burberry (BBRYF.PK) stock price stands slightly above our revised valuation range of p540-550.

H1 Trading update: Sales up 6% reported, down 5% underlying in H1. Guidance: selling space up 8-10% in retail, wholesale to decline by 15% in H2, licencing down 5-10% for the full year.

Trading update provides good news
-Comparable store sales were up 5% in Q2, vs 0% in Q1. Although it is too early to extrapolate, we are now looking for 2% increase for the full year. In addition sales will be boosted by +8-10% selling space.
-Wholesale was down 21% in Q2 vs 28% in Q1. Management forecasts -15% in H2. Burberry keeps gaining share in the US, where wholesale shows some improvement in H2, despite further adjustment in inventory levels.
-licencing revenues should decline by 5-10% against 10-15% previously forecasted, thanks to the amendment of the Japanese apparel licence.
-Gross margin should deteriorate in H1 as a result of the clearance activity, but not as much as expected.
-H1 led to a cash inflow, which reflects a tight control over inventories.

Last forex impact should remain positive for the full year (7-8%) thanks to the recent weakness of the sterling.

Burberry shares trade at 18.8x P/E (2009) and 17.2x P/E (2010 est) respectively. We think that they are already predicting a return to double digit growth in profit next year, leaving little room for further rerating in the coming months.

Comments

[notsosmart:]

strange.here in lower faifield county,ct.(lots of money) their store @ the local mall is long gone. it closed during the good years. i dont think they make the real good quality coat in the UK anymore.i still have one of the original good heavy quality british made raincoats.the bottom line is more important than the quality.sad.

Oct 14 11:01 AM