Burberry is renowned for inventing gabardine—a fabric that revolutionized outerwear—and its iconic check pattern, both hallmarks of British craftsmanship. Its trench coats have become timeless symbols of style. Given the brand's enduring appeal, Burberry may indeed hold promise as a long-term investment. But is it truly positioned for sustained growth? This analysis will explore that question.
This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.
For full disclosure, I should start by mentioning that at the time of writing this analysis, I do not own any shares in Burberry. If you would like to see the stocks in my portfolio or copy my portfolio, you can do so on eToro, You can find instructions on how to do this here. Thus, I have no personal stake in Burberry. If you want to purchase shares (or fractional shares) of Burberry, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started with investing with as little as $100.
Burberry is a British luxury brand headquartered in London, rooted in a legacy of quality, innovation, and responsible business. Established in 1856 by Thomas Burberry, the brand revolutionized outerwear in 1879 with the invention of gabardine—a fabric that is both weather-resistant and breathable. Burberry has since become synonymous with British craftsmanship, exemplified by its iconic trench coats and signature check pattern, solidifying its position in the global luxury market. As a brand that embodies "Modern British Luxury," Burberry merges British craftsmanship with innovation. Its strong brand identity, anchored by iconic products like the Heritage Trench Coat and check pattern, distinguishes it within the luxury market, forming a significant moat. With design teams in London, Burberry produces its trench coats in Yorkshire and check cashmere scarves in Scotland, while Italian centers of excellence support leather goods and technical outerwear. Its vertically integrated model, strengthened by key supplier acquisitions, allows for quality and sustainability control, ensuring each product reflects its commitment to luxury and heritage. Burberry’s revenue distribution showcases its global reach and product diversity. Regionally, the Asia Pacific market accounts for 44% of revenue across 239 stores, followed by EMEIA (Europe, Middle East, India, and Africa) at 35% with 100 stores, and the Americas at 21% with 83 stores. Retail leads Burberry’s channels, contributing 83% of revenue, with wholesale at 17% and licensing under 1%. By product, accessories make up 36% of revenue, with womenswear and menswear at 30% and 29%, respectively, and childrenswear and other categories comprising the remaining 5%.
Joshua Schulman is the CEO of Burberry, having joined the company in July 2024. Before this role, Schulman held leadership positions across the luxury sector, including as CEO of Michael Kors, brand president and CEO of Coach, president of Bergdorf Goodman, and CEO of Jimmy Choo. He has also worked for Kenneth Cole New York, Gap Inc., and spent eight years with Gucci Group, where he was executive vice president of Yves Saint Laurent. Schulman was appointed Burberry's CEO for his proven track record in building global luxury brands and driving profitable growth. His transformation of Coach’s brand image and financial performance, in particular, demonstrated his skill in rejuvenating luxury brands—a capability he may now bring to Burberry. However, Joshua Schulman’s appointment has raised some concerns. He was unemployed from March 2022 until joining Burberry in July 2024, and most of his CEO experience is within the accessible luxury segment, which has led some to question whether Burberry might shift focus toward more affordable luxury offerings. As Joshua Schulman is still new in the role, his impact on Burberry remains to be seen. Despite his strong background in luxury, his experience leans toward accessible luxury. Therefore, some uncertainties remain regarding his potential influence on Burberry's positioning and long-term strategy.
I have determined that Burberry has a moat. However, there are some concerns regarding management, as the team is new. Now, let us analyze the numbers to determine if Burberry meets our criteria for possessing a strong competitive advantage. For an explanation of what the numbers represent, please refer to "MY STRATEGY" on the website.
The first metric to investigate is the return on invested capital (ROIC). I would like to see a ten-year history with ROIC above 10% in all ten years. Burberry has delivered a ROIC above 10% every year in the past decade, which is encouraging and indicates effective capital utilization and a strong competitive position. However, ROIC hasn’t topped 20% since 2019. Burberry managed to increase its ROIC from 2021 to 2023, and it seemed only a matter of time before the company would exceed 20% again. Unfortunately, the trend reversed in fiscal year 2024, where Burberry delivered its lowest ROIC in the past ten years—a reflection of broader challenges faced by the luxury sector. Despite this recent decline, Burberry meets the requirement of a ROIC above 10% over the past decade, highlighting its historical financial strength.
The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. I don't have the growth rate from 2013 to 2014 as Finbox only provides data for the past ten years. Burberry has exhibited fluctuations in its equity over the past decade, with declines in four of those years. Notably, fiscal year 2024 saw a reduction in equity, reaching its lowest point in ten years, even below levels observed during the pandemic. This trend is concerning, and it is hoped that Burberry will reverse this pattern and resume equity growth in the future.
Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share.Burberry has consistently achieved positive free cash flow each year over the past decade. However, in fiscal year 2024, free cash flow reached its lowest level since 2016, which is a concern. The luxury sector faced significant challenges in 2024, with Burberry generating considerably less cash than in the previous year, while capital expenditures increased, impacting free cash flow. This also affected the levered free cash flow margin, which is now at its lowest point in the last ten years. Ideally, both free cash flow and the levered free cash flow margin will rebound as macroeconomic factors affecting the luxury industry improve. Notably, Burberry’s free cash flow yield currently stands at 12%, its highest in the past decade, suggesting that shares are trading at an attractive valuation, a point to revisit later in the analysis.
Another important aspect to consider is debt. It’s essential to assess whether a business has a manageable debt level that can be repaid within three years, calculated by dividing total long-term debt by earnings. Analyzing Burberry’s financials reveals that the company has 1,13 years of earnings in debt, well below the three-year threshold. This suggests that debt is not a concern if I were to invest in Burberry. Additionally, Burberry typically maintains its long-term debt at a steady level each year, indicating that debt is unlikely to become a concern for the company in the future.
If you trade stocks frequently, you can boost your results with VIP trading indicators. These tools are specifically designed to simplify your trading decisions and help you trade more profitably. Getting started is easy and affordable, with a cost of just $9. Plus, there’s a 30-day money-back guarantee, so if you don’t find value in the first 30 days, you can simply request a refund.
Based on my findings so far, I believe that Burberry is an intriguing company. However, no investment is without risk, and Burberry faces its fair share of challenges. One significant risk is macroeconomic factors. Macroeconomic conditions present a notable risk for Burberry due to the sensitivity of luxury demand to economic cycles and consumer confidence. Spending on luxury items, including Burberry’s high-end products, is highly dependent on consumer disposable income, which can be affected by economic downturns, inflation, and regional instability. When disposable income decreases, consumers tend to prioritize essential spending over luxury goods, leading to softer demand for Burberry’s offerings. Burberry's reliance on key markets such as China, the U.S., and Europe makes it especially vulnerable to regional economic fluctuations. Recently, the company has encountered weaker-than-expected demand in China and the U.S., along with reduced tourism in Europe due to economic uncertainties and cautious consumer behavior. Since a significant portion of European luxury spending depends on tourism—particularly from Chinese and American travelers—a downturn in these regions intensifies this risk. Additionally, macroeconomic conditions impact not only consumer demand but also operational costs, as inflation and supply chain disruptions can drive up expenses and affect Burberry’s profitability. Another risk is potential brand dilution through discounting. As Burberry explores ways to make its products more accessible, it faces the risk of diluting its luxury image. Luxury brands thrive on exclusivity, and Burberry’s reputation has been built on offering high-quality, premium-priced items. Expanding entry-level price points and increasing outlet sales to manage excess inventory could erode Burberry’s high-end appeal. More accessible pricing and frequent discounting may lead consumers to perceive the brand as less exclusive. Frequent discounting and outlet exposure can also shift consumer expectations, with customers potentially waiting for sales instead of purchasing at full price. This shift could make it harder for Burberry to maintain premium pricing, as customers may begin associating the brand with affordability rather than luxury. Additionally, if Burberry’s offerings become overly accessible, it risks alienating high-end customers who value exclusivity and are willing to pay a premium for it. Over time, these changes could weaken the brand's image, making it less desirable to its core luxury market and diminishing brand loyalty. Counterfeiting poses a persistent and growing threat to Burberry, undermining its brand exclusivity, reputation, and revenue. With advancements in manufacturing, counterfeiters are now producing high-quality replicas that closely mimic Burberry's logos, designs, and materials, making them increasingly difficult to distinguish from genuine products. This results in consumer deception and erodes trust in the brand. Beyond revenue loss, each counterfeit sale represents a missed opportunity for Burberry to sell an authentic product, thereby reducing its market share. Additionally, the saturation of counterfeit goods dilutes Burberry's high-end image, diminishing the demand for genuine items. Many younger consumers, who may prioritize style over authenticity, are often drawn to counterfeit versions, which lowers the perceived exclusivity of Burberry’s products. Social media platforms like TikTok intensify this risk by promoting counterfeit goods to younger audiences, some of whom may not prioritize authenticity in luxury purchases. Burberry has taken measures to combat counterfeiting, including the destruction of unsold inventory to maintain brand exclusivity and protect intellectual property. However, the ongoing presence of high-quality counterfeits continues to challenge Burberry’s ability to uphold its luxurious image and sustain customer loyalty. The revenue loss associated with counterfeiting also restricts Burberry's ability to reinvest in innovation, design, and quality control, all essential to maintaining its status as a top luxury brand.
There are several reasons to consider investing in Burberry, one of the most compelling being its refreshed creative direction. Under Chief Creative Officer Daniel Lee, Burberry blends British heritage with a modern edge, enhancing its timeless pieces with innovative designs that resonate with today’s luxury consumers. This refreshed approach elevates core items like the Heritage Trench Coat and Burberry Check with new colorways and sustainable materials. Positive feedback from top clients underscores demand for these enhanced collections, particularly in outerwear. Burberry’s high-visibility marketing, including city takeovers and major fashion events, has bolstered its relevance in key luxury markets such as New York and Shanghai. Additionally, the brand is targeting growth in high-potential categories like leather goods, shoes, and women’s wear. By combining British heritage with contemporary appeal and expanding its product range, Burberry is well-positioned for growth in the global luxury market. This strategy strengthens its brand identity while opening new revenue streams, supporting its goal to increase annual revenue to £4 billion. Another reason to consider investing in Burberry is its focus on elevating the customer experience across both retail and digital channels, a strategy that bolsters its premium brand image and enhances customer loyalty. Burberry has strategically invested in its high-visibility store network, opening and refurbishing flagship stores in key luxury markets such as Paris, London, and Hong Kong. These updated stores, which reflect Burberry’s elevated brand positioning, have demonstrated stronger customer engagement and increased spending per visit, often outperforming comparable stores in productivity. With plans to continue upgrading stores, Burberry aims to achieve productivity levels of £25.000 per square meter annually, underscoring the potential for revenue growth through a refined in-store experience. In addition to its physical stores, Burberry has enhanced its online shopping platform to align with its refreshed brand aesthetic, improving the website’s product focus and customer journey. This investment in digital channels supports Burberry’s omnichannel strategy, ensuring seamless integration between in-store and online experiences—a key expectation among today’s luxury consumers. Burberry’s goal of doubling its e-commerce sales to represent 15% of retail revenue underscores its commitment to long-term growth. By refining customer experiences both online and offline, Burberry is strengthening brand loyalty, driving conversion, and supporting its premium pricing strategy. The luxury sector is experiencing favorable demographic and economic trends that could significantly benefit Burberry. Younger consumers, particularly Millennials and Gen Z, are driving multi-generational demand for luxury goods, purchasing high-end products at younger ages than previous generations. Gen Z, in particular, is expected to become the second-largest segment in the luxury market by 2030. This generation’s focus on impact and purpose aligns with Burberry's sustainability initiatives, enhancing its appeal to these younger, values-driven consumers. Additionally, the global expansion of the middle class is a promising tailwind. By 2030, an estimated 700 million people are expected to join the middle class, increasing demand for aspirational luxury products as incomes rise. This group, already the largest spending demographic, is projected to spend $62 trillion annually by 2030. With its established brand and strong presence in key luxury markets, Burberry is well-positioned to capitalize on this expanding consumer base. In response to these trends, Burberry is refining its product mix to cater to both high-net-worth clients and the growing middle class. These favorable market conditions, combined with Burberry’s proactive strategies, underscore its potential for sustained growth.
For those serious about investing, a Seeking Alpha subscription can be a game-changer. It offers comprehensive financial data, transcripts, market news, quant ratings, and in-depth analyses—everything you need for informed investment decisions. I use Seeking Alpha daily and find tremendous value in my subscription. Right now, you can save $30 on your first year of a premium subscription by signing up here or clicking on the picture below. Plus, you’ll get a 7-day free trial to explore all the features and see if it’s as valuable to you as it is to me.
Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.
The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 0,74, which is from fiscal year 2024. I have selected a projected future EPS growth rate of 9%. Finbox expects EPS to grow by 65,5% a year in the next five years, but I decide to use the same growth rate as I did for LVMH. Additionally, I have selected a projected future P/E ratio of 15, which is twice the growth rate. This decision is based on the Burberry's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be £7,79. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Burberry at a price of £3,90 (or lower, obviously) if we use the Margin of Safety price.
The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 506, and capital expenditures were 158. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 111 in our calculations. The tax provision was 112. We have 356,5 outstanding shares. Hence, the calculation will be as follows: (506 – 111 + 112) / 356,5 x 10 = £14,22 in Ten Cap price.
The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Burberry's Free Cash Flow Per Share at £0,98 and a growth rate of 9%, if you want to recoup your investment in 8 years, the Payback Time price is £11,78.
I believe that Burberry is an intriguing company with a distinct moat rooted in its strong brand identity. However, there are some concerns regarding the management, as the new CEO has primarily affordable luxury experience. Fiscal 2024 presented challenges for Burberry, with ROIC at its lowest level in a decade and free cash flow at its lowest since 2016. Macroeconomic factors pose a risk to Burberry, as luxury spending is sensitive to economic cycles and consumer confidence. Economic downturns, inflation, and regional instability can reduce disposable income, prompting consumers to cut back on luxury purchases, impacting both demand and profitability for Burberry. Additionally, potential brand dilution through discounting is a concern. Expanding entry-level pricing and outlet sales may erode Burberry's luxury image, as frequent discounting could lead consumers to view the brand as less exclusive. This shift could impact brand loyalty and make it more challenging to sustain premium pricing in the future. Counterfeiting presents another significant risk, as it undermines brand exclusivity, erodes consumer trust, and results in lost sales. The increasing quality of counterfeits makes distinguishing genuine products more difficult, potentially diluting Burberry’s high-end image and diminishing demand, especially among younger consumers. On the positive side, Burberry’s new creative direction under Daniel Lee revitalizes its British heritage with a modern appeal, supporting its £4 billion revenue goal. Investments in elevating the customer experience across retail and digital channels reinforce its premium image and foster customer loyalty. Upgraded stores and an enhanced online shopping experience aim to drive engagement, increase productivity, and support long-term revenue growth. Additionally, favorable market conditions, including rising demand from younger consumers and global middle-class expansion, create promising growth potential for Burberry. However, I personally believe that there are too many uncertainties surrounding Burberry at this stage, and I will not be investing in the company at this time.
My personal goal with investing is financial freedom. It also means that to obtain that, I do different things to build my wealth. If you have some extra hours to spare each month, you can turn a few hours a week into a substantial amount of money in a few years. If you are interested to know how I do it, you can read this post.
I hope that you enjoyed my analysis. Unfortunately, I cannot do a post of all the companies I analyze. I am available to copy but if you do your own trades, you can follow me on Twitter instead, as I tweet when I buy or sell anything.
Some of the greatest investors in the world believe in karma, and in order to receive, you will have to give. If you appreciated my analysis and want to get some good karma, I would kindly ask you to donate a bit to ADEPAC. It is a charity I know first hand and I know they do a great job and have very little money. If you have a few Euros to spare, please donate here by clicking on the Paypal icon. Even one or two Euros will make a difference. Thank you.
Comentarios