Luxury fashion chainBurberry Group (LSE: BRBY) has lost some of its catwalk swagger in recent years, largely dueto falling sales in Asia as Chinese consumers retrench. So willtodays positive third-quarter trading update swingitfirmly back into fashion?
Todays headline figure was an underlying 4% leap in retail revenue to 735m for the three months to 31 December 2016. Overseas revenues were given a further boost by the slump in the value of sterling, which means that earnings actually leapt22% at reportedFX.
Obviously, thatcurrency boost is unlikely to be repeated, and could even reverse now that markets are pricing-ina hard/clean/red-white-and-blueBrexit, which could hit future numbers. However, comparable sales rose 3%, with the good news that Asia-Pacific has returned to growth. Burberrywas happy to report acceleration in mainland China and improvement in Hong Kong (although sales in HK are still declining), plus double-digit percentage growth in Europe, the Middle East and Africa (EMEIA).
Britain is the real star, with continued exceptional performance as comparable sales grow around 40%, boosted by both domestic consumers and travelling luxury customers taking advantage of the crashing pound. Even France is improving.There was no Trumpboost, however, with the Americas posting a low single-digit percentage decline, due to unevendomestic and travelling luxury customer demand.
In the fashion industry, image is all. Here, Burberry appears to be doing well. Itsfestivefilm has secured more than 22m views, itsdigital operation continues to lead the pack, and the brand remains strong. Investors who keep a closer eye on the back office fundamentals than front-of-house shenanigans will be pleased to see the company on course to make 20m of cost savings this calendar year, while noting that77m of a planned 150m share buyback programme has now been completed.
These results came in ahead of expectations but the share price ticked up only slightly, perhaps because high expectations are priced-in, with the share price up42% in the past 12 months. It currently trades at a luxury 22.6 times earnings, which is a bit high-end. The dividend yield is 2.32%, hardly compelling.
Burberry has recovered well from its share price slump in 2014 and 2015, even ifthe sterlingslump can claim most of the glory for itspost-Brexit bonanza. However, management deserves praise for its robust cost-cutting programme and successful growth strategies, which have helped drive a return to form in Asia.
The future looks promising, with forecast earnings per share growth of 7%, 7% and 10% over the next three years. Pre-tax profits of 433m in the year to 31 March 2016 are forecast to continue rising and to hit 520m three years later in 2019. Myonly quibbleis that recent strong share price growth and the pricey valuation makeBurberrymore of a hold thana buy.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Burberry. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.