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Every time I look at the Burberry (LSE: BRBY) price, is doing one of two things. Jumping up, or jumping down. Lately, it has been moving a few percent almost every day. What is it trying to tell us?
I FTSE 100-The listed luxury fashion retailer has a lot of explaining to do, given its hyper-volatile recent performance. Shares are down about 40% in three years, but up 43% in the past 12 months.
Fruity FTSE 100 stock
The decline began in 2023, as the luxury goods sector struggled, mainly due to declining demand in key markets such as China. Profit warnings, declining revenue and declining retail sales have spooked investors. But not me. I saw the problem as a buying opportunity and plunged in, only to find myself sitting on a rapid fire 40% loss as the slide continued.
By September 2024, shares had fallen to a 15-year low, and Burberry was demoted. FTSE 250. I stuck with it, and I’m glad I did.
The stock pulled back faster than I thought, as investors embraced CEO Joshua Schulman’s new Burberry Forward strategy. This was aimed at refocusing the brand on its value products, such as outerwear and trench coats, to facilitate sales and reduce costs.
I thought investors jumped right in, to be honest, because Schulman hasn’t delivered anything yet, he just laid out a plan. Still, I wasn’t complaining.
And now it seems to be paying off. In November, Burberry reported an increase in quarterly comparable store sales for the first time in two years, helped by fluctuations in China. It posted an adjusted operating profit of £19m in the first quarter to 27 September, going some way to reversing a loss of £41m last year. Operating margin turned positive at 1.9%, from a negative 3.8%. They are still thin though.
JPMorgan which subsequently downgraded Burberry from Neutral to Underweight, suggesting consensus forecasts were too optimistic given broader macroeconomic challenges. There hasn’t been much company-specific news, but shares have been moving slowly as sentiment fills the gap. They were down 4.62% yesterday, but down 3.38% today (January 7). This is just one example.
This stock is volatile
Despite their fluctuations, the general direction of travel is upward. So should investors sink their teeth into Burberry today?
One thing to be aware of. Burberry publishes its Q3 trading update on 24 January. While we wait, the RBC broker remains optimistic. It notes that last year, Burberry was busy clearing a lot of inventory. That is over now. RBC still rates the stock as Outperform and forecasts like-for-like sales growth of 2% to £658m, led by growth of 3% in Greater China and 2% across the Americas.
RBC’s target price is 1,400p, but that represents a modest upside of around 5% from today’s 1,314p. Consensus forecasts produce a target of just 1,310p, down slightly from today. This supports my opinion about Burberry, which is this.
If I didn’t own Burberry shares, it wouldn’t be my first choice today as progress would get sticky from here. I’m still holding on, but investors should consider looking elsewhere to the FTSE for the next big recovery play. Maybe something a little bit banana.
