According to FTSE Russell, which manages the UK’s blue-chip index, a decision will be made following its next quarterly review. Investors will know after market close on Tuesday next week.
Shares in the Narrow-Moat luxury fashion designer have suffered steep declines of late, losing 50% of their value in 2024 so far, and 70% over the past 12 months.
Key Morningstar Metrics For Burberry (BRBY)
• Morningstar Fair Value Estimate: £13.30
• Morningstar Rating: ★★★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High
• Discount to Fair Value: 48%
• Sector: Consumer Cyclical
According to Jelena Sokolova, senior equity analyst at Morningstar, Burberry has been shackled by three main hurdles. So far it has been unable to overcome them.
“[Firstly,] high exposure to slower growing apparel and relatively small exposure in terms of revenue to iconic outerwear products,” she says.
“An unsuccessful push into fashion-forwardness with three creative director changes over the last 10 years and a failed push into leather goods, [which is a] very competitive area with strong established players where Burberry’s brand is not strong enough.
“[Then there’s] recent price hikes coinciding with a slowdown in luxury buying and a special weakness of aspirational consumer.” This latter factor has in part been driven by weaker-than-expected economic growth in China.
Sokolova does still see potential upside in Burberry’s shares, and gives the company a Fair Value Estimate of £13.30.
“Historically, luxury downturns have not lasted longer than one to two years and Burberry has a chance to reinvent itself through a renewed focus on key outerwear collections and more affordable ranges,” Sokolova says.
In July Morningstar reduced its Fair Value Estimate for Narrow-Moat Burberry from £15.70, reflecting weaker expectations for this year, as well as a slower long-term sales recovery.
Burberry’s sales revenue was down 21% in the three months to the June 29. Sales in the Asia Pacific Region also dropped 23%, while sales in mainland China and the Americas fell 21% and 23%, respectively.
The disappointing results led the company to suspend its dividend.
