Buyback could boost Burberry shares

Burberry plans a £400 million share buyback programme for 2023. The upscale fashion retailer unveiled the scheme alongside upbeat full-year results.

Pre-tax profits rose 4% to £511 million from £490 million last year, while at constant exchange rates, revenues at the fashion retailer increased by 23% (21% reported) to a record £2.8 billion.

As a sign of confidence, Burberry restored its dividend payment to pre-Covid levels.

The shares rose 1% as the FTSE 100 was hit by a global inflation-related sell-off on Wednesday.

Burberry battles ‘near-term uncertainty’

The company said it was maintaining its earnings guidance for the full-year 2023 of “high single-digit revenue growth and meaningful margin accretion at CER [constant exchange rates] in the medium-term”. However, management said the outlook was dependent on the impact of Covid and the “rate of recovery in consumer spending in mainland China,” one of its biggest overseas markets.

Burberry is currently seeing “significant disruption” in the region due to the Covid-related lockdown, with around 40% of its store network affected. Sales in China fell 13% in the fourth-quarter. However, it expects sales to bounce back quickly once restrictions are relaxed - as has been seen following previous lockdowns.

It also said that while the economic environment meant “some near term uncertainty,” it was “actively managing the headwind from inflation.” As such, Burberry expects a currency tailwind of £159m on revenue and £92m on adjusted operating profit this year. The strong US dollar is expected to provide some resilience, however.

Strong overseas trading at the fashion brand

Trading in the US was strong, with store sales up 28% and full-price sales up 86% compared to lacklustre UK trading. Three new flagship stores were also opened in London, Paris and Shanghai, with 47 stores refurbished in its new design.

Burberry plans 65 store openings and refurbishments this year, with a £170 million to £180 million capital expenditure programme. Wholesale revenues rose 23% during the period but are expected to be flat this year.

Net debt almost doubled to £179 million from £101 million last year due to a reduction in net cash from share buybacks and an increase in leasing related liabilities on the balance sheet. Cash conversion – the ability of the company to convert profits to cash - came in at 106% for the full-year 2022 (111% in 2021).

New chief executive Jonathan Akeroyd, previously at Versace, who joined in March, promises a strategy update in November.

Luca Solca, analyst at Bernstein, told the FT that Burberry has greater exposure to the Chinese market than some of its rivals and should “therefore have more material rebound potential if the Chinese ‘zero-Covid’ policy was amended or phased out before the second half of the year”.

The shares have fallen 23% this year to 1608.5p after a decent performance over the past two years. Burberry will face currency and inflation headwinds this year, as well as the challenge of overcoming the impact to trading of continued Covid-related issues in China. However, its strength as an international brand, share buyback programme and the likely financial resilience of its customers should stand it in good stead.

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*Based on revenue (published financial statements, 2022).