Burberry Boss Returns to Italy to Lead Rival Ferragamo

By Muvija M and Claudia Cristoferi

Gobbetti has been credited with boosting Burberry’s market value by a third as he has taken the brand further upmarket. Concern that his departure will undo some of that progress sent its London-listed shares tumbling as much as 10% in early trade while Ferragamo rose 2.3% in Milan.

Burberry recovered some of those losses to trade down 7.7% at 20.80 pounds. Ferragamo reversed early gains and was down 1.5% down at 19 euros, with one trader citing reduced likelihood of a takeover after Gobbetti’s appointment.

“The board and I are naturally disappointed by Marco’s decision, but we understand and fully respect his desire to return to Italy after nearly 20 years abroad,” Burberry Chairman Gerry Murphy said in a statement.

Ferragamo, which became famous for shoes worn by Hollywood stars such as Audrey Hepburn, said Gobbetti would take up his new position once released from his contractual obligations.

Burberry said it will now begin the search for the 62-year-old executive’s successor.

Known for its trench coats and trademark plaid, Burberry’s strategy shift under Gobbetti injected fresh life into its ranges, helped by his 2018 recruitment of star designer Riccardo Tisci, a fellow Italian and former colleague at Givenchy.

‘RIGHT TIME’

“With Burberry re-energised and firmly set on a path to strong growth, I feel that now is the right time for me to step down,” Gobbetti said.

The market, however, appeared less confident in Burberry without Gobbetti.

“This is a negative for Burberry and a source of uncertainty until we get clarity on the new CEO,” Citi analysts said.

Citi predicted that Gobbetti’s key initiatives will remain in place for at least another year and be executed by an interim CEO, possibly finance chief Julie Brown.

They also flagged potential uncertainty over creative director Riccardo Tisci, who had followed Gobbetti to Burberry.

Analysts were also puzzling over Gobbetti’s decision to leave Burberry, which is more than three times bigger than Ferragamo by market value, though Hargreaves analyst Susannah Streeter suggested the reason could simply be that he wanted to return home after all the turmoil of the COVID-19 pandemic.

“Even chief executives, with access to first-class travel or private jets are not immune to quarantine rules and travel restrictions,” she said.

Speculation over a management shake-up at Ferragamo has been circulating for some time, even after the Ferragamo family that controls the company confirmed current boss Micaela Le Divelec in her role as recently as March.

SALES RECOVERY

In Gobbetti, it has hired an industry veteran who has also led luxury groups Celine, Givenchy and Moschino. He took charge of Burberry in mid-2017 from fashion designer Christopher Bailey, who spent only three years leading the company.

Burberry said in May that sales were recovering from the coronavirus crisis, partly thanks to a rebound in China, but cautioned that profit margins would be dented by higher investment.

Hargreaves analyst Sophie Lund-Yates had noted that Burberry was set to come out of the pandemic in better shape than it had entered the crisis, helped by its repositioning at the more exclusive end of the luxury chain.

Ferragamo, meanwhile, has been hit harder than most of its rivals during the pandemic and is often cited by industry observers as a possible takeover target, though the Ferragamo family has denied that it wants to sell.

 

Graphic: Burberry shares – https://fingfx.thomsonreuters.com/gfx/buzz/bdwvkodmlvm/Pasted%20image%201624869761452.png

($1 = 0.7190 pounds)

(Reporting by Muvija M and Claudia Cristoferi; Additional reporting by Agnieszka Flak; Editing by Louise Heavens and David Goodman)

Burberry’s Pandemic Recovery Accelerates

Other big luxury groups like Hermes, Kering and LVMH are also on course to put the COVID-2019 crisis behind them, with first-quarter revenues already exceeding pre-pandemic levels.

The label, known for its trench coats, check fabric and TB monogram, reported a 10% drop in sales for the year to March 27, hit by store closures and reduced tourism.

The company’s shares fell around 8% in early trading.

But Burberry said fourth-quarter comparable store sales increased 32% year-on-year, despite an average of 16% of stores still being closed.

It said full-price sales rose 63% in the quarter driven by mainland China, Korea and the United States.

In March, Burberry faced calls for a consumer boycott in the Chinese market over Xinjiang cotton.

Taking full-year 2020 as the base year, Burberry expects revenue to grow in the medium term at “a high single digit percentage” compound annual growth rate at full-year 2021 constant exchange rates.

The company said this growth will be driven by full-price sales as the fashion company exits markdowns in mainline stores in full-year 2022.

Burberry also said that the move to reduce markdowns would be a headwind against comparable store sales growth amounting to “a mid-single digit percentage” in the year.

The company said adjusted operating margin progression during the year would be impacted by increased investment to accelerate growth.

Burberry reported an adjusted operating profit of 396 million pounds ($556 million) – ahead of analysts’ average forecast of 378 million pounds, but down 8% from the 433 million pounds made in 2019-20.

The full-year dividend was reinstated at 2019 levels of 42.5 pence.

Shares in Burberry, up 18% so far this year, had closed on Wednesday at 2,104 pence, valuing the business at 8.57 billion pounds.

($1 = 0.7118 pounds)

(Reporting by James Davey; editing by Michael Holden and Jane Merriman)

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Burberry, Commodity Stocks Drag FTSE 100 Lower; Inflation Woes Linger

The blue-chip index slipped 1.3%, giving up the previous session’s gains. Luxury brand Burberry tumbled 8.1% to the bottom of the index after it reported a 10% drop in annual sales, impacted by store closures and reduced tourism due to COVID-19.

Oil majors BP and Royal Dutch Shell, and miners were among the biggest drag to the index on lower oil and commodity prices. [O/R][MET/L]

The domestically focussed mid-cap FTSE 250 index declined 0.8%.

Globally, stocks slipped after a shocking rise in U.S. inflation bludgeoned Wall Street and sent bond yields surging on worries the Federal Reserve might have to move early on tightening. [MKTS/GLOB]

BT Group, Britain’s biggest broadband and mobile provider, slid 4.2% after it reported a 7% fall in revenue and a 6% drop in adjusted earnings for the year to end-March, and forecast adjusted revenue to be broadly flat this year.

(Reporting by Devik Jain in Bengaluru; Editing by Subhranshu Sahu)

Dixons and Burberry Slide, as ASOS Outperforms, US Banks Remain in Focus

Investors also appeared to be unconcerned that the vaccine prompted some side effects in these early stage trials, however Asia markets were slightly more mixed with the Bank of Japan leaving rates unchanged.

The Nikkei225, and Korean markets pushed higher, however Chinese and Hong Kong markets slid back in the wake of President Trump signing the legislation revoking Hong Kong’s special trade status.

Markets here in Europe have taken their cues from the late rally in the US, opening higher as the tug of war between the bulls and the bears continues with respect to the next significant move.

The DAX is once again trading back close to the highs we saw in early June, while the FTSE100 is once again back above the 6,200 level, having been in a fairly broad 6,000/6,400 range for the past four weeks.

Luxury fashion retailer Burberry has had to contend with a number of challenges over the last 12 months, from the disruption of its Hong Kong business as well as the fallout from weaker Chinese demand and the spread of coronavirus. In May the company reported full-year numbers that saw operating profits slide 57% to £189m Revenues were hit hard by the costs of the disruptions in Hong Kong as well as the closure of various stores due to coronavirus pushing their impairments up to £245m.

This morning’s Q1 numbers are slightly better, with Q1 sales declining 45% while Q2 sales are expected to fall by between 15% and 20%. Retail revenue almost halved from £498m to £257m. This is a little disappointing but not altogether surprising, and given recent news of further restrictions in Hong Kong, could be viewed as being on the optimistic side, which probably helps explain why the shares are lower in early trade.

The improvement in Q1 is mainly down to stores in mainland China and Korea re-opening, however given the recent challenges posed by coronavirus, management appear to be looking towards making some savings in the way the business is run by introducing some changes, taking a restructuring charge of £45m.

Some of these changes, as well as some office space rationalisation could mean a reduction in headcount at its London Head Office, delivering annual savings of £55m.

Electrical retailer Dixons Carphone reported its latest full year numbers, which saw revenues come in around 1% above expectations, at £10.17bn, and down 3% on 2019 levels.

The company posted a loss after tax of £163m, largely down to the impact of Covid-19, which impacted the UK and Ireland mobile operations causing revenues to fall 20%. This was primarily down to the closure of stores at the end of March. All other areas of the business saw revenues increase over the period. While losses have reduced, and the outlook set to remain uncertain, the shares have slipped sharply in early trade, however all other areas of the business performed quite well, which suggests that investors might be overreacting to the losses in the mobile division, which Dixons is pulling away from in any case.

Fast fashion retailer ASOS latest update for the four months to the end of June, has seen the shares push back up towards this year’s high on expectations that profits are likely to be at the upper end of forecasts. Group sales saw an increase of 10% to just over £1bn for the period, with the customer base seeing a rise of 16%. Most of the sales growth came in its EU market, with a rise in sales of 22%. Gross margins were lower to the tune of 70bps, a trend that seems likely to continue given the current environment.

In a sign that fashion companies are becoming increasingly nervous about their brand reputation, ASOS also announced that they were axing contracts to suppliers who were found to be in breach health and safety, as well as workers’ rights regulations.

Homeware retailer Dunelm Group was one of the few success stories in UK retail last year, with the company posting strong operating profits and paying a special dividend. We are unlikely to see anything like that this year. The company closed all of its stores on the 24th March, furloughing employees under the governments job retention scheme, at a cost of £14.5m, and has slowly been reopening the business since late April, when it reopened its on line operations. At the time it said it had enough capital to withstand store closures of up to six months.

Fortunately, that hasn’t come to pass, and the company never had to draw on its £175m financing facilities. All of its stores have now re-opened, with one-way systems and strict social distancing guidelines in place. The in-store coffee shops are expected to reopen by the end of July, while the share price has managed to recover most of its losses for this year. This morning’s Q4 update, has seen total sales for the quarter decline by 28.6%. Online sales more than made up for that with a rise of 105.6% year on year, with the month of May seeing a 141% increase.

In terms of the full year numbers, sales were only down 3.9% on the prior year at £1.06bn, with profits before tax expected to be in the range of £105m to £110m, down from £125.9m the previous year, which given the disruption over the last few months is a pretty decent performance.

In terms of the future, costs are expected to increase to the region of £150k per week, however given how badly coronavirus has affected other retailers, Dunelm has ridden out the storm remarkably well.

The pound is holding up well after a weak session yesterday with the latest inflation numbers showing a modest uptick in June to 0.6%, with core prices rising 1.4%, from 1.2% in May.

Crude oil prices are a touch higher this morning ahead of an online meeting of OPEC+ monitoring committee which could decide whether the group is inclined to maintain the production cuts currently in place, which are due to expire at the end of this month.

US markets look set to open higher, building on the momentum seen in the leadup to last nights close, with the focus once again back on the latest bank earnings numbers for Q2.

Having seen JPMorgan, Citigroup and Wells Fargo collectively set aside another $28bn in respect of non-performing loans yesterday, that number is set to increase further when the likes of Bank of America, Goldman Sachs and Bank of New York Mellon report their latest Q2 numbers later today.

In Q1 US banks set aside $25bn in respect of credit provisions, and the key takeaway from yesterday was that while these banks trading divisions were doing well, their retail operations were starting to creak alarmingly. This is why Wells Fargo suffered its worst year since 2008, given that it lacks an investment banking arm, and could well see the bank embark on some significant cost saving measures over the course of the next few months.

The difference between Wells Fargo and JPMorgan’s numbers couldn’t have been starker, with Wall Street trading operations doing well, while Main Street painted a picture of creaking consumer finances.

Dow Jones is expected to open 190 points higher at 26,832

S&P500 is expected to open 15 points higher at 3,212

For a look at all of today’s economic events, check out our economic calendar.

By Michael Hewson (Chief Market Analyst at CMC Markets UK)