London fashion week starts today and is a reminder that the UK often leads the world in the style stakes. Could these three companies add a bit of style to your portfolio?
Handbags At Dawn
Global style guru Burberry Group (LSE: BRBY) was big in China until it was tripped up by a combination of the Communist Party crackdown on luxury giving and the wider slowdown in the world’s second-biggest economy.
Burberry’s share price has subsequently collapsed faster than a supermodel stumbling in her catwalk heels, crashing 25% in the last six months. Yet it still trades at a premium price of 17.8 times earnings, and its fundamentals are solid, with operating margins of 17.5% and return-on-capital-employed of 33%. Forecast earnings per share (EPS) growth are flat for the year to March 2016, but is expected to hit 10% the following year. With buoyant Chinese M3 money supply figures suggesting a sharp rebound in the months to come, now could be the ideal time for investors to get with it.
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New store openings, strong US growth, rising beauty revenues, a healthy balance sheet and global easy money policies that benefit the wealthy should help Burberry stay in vogue.
Marks Loses Its Spark
Marks & Spencer Group (LSE: MKS) has been a fashion disaster for years, the group only being saved by its food and home divisions. M&S took a recent hit from recent disappointing sales figures — footfall slumped in August, according to the BRC- Springboard retail survey, sticking the boot into the M&S share price.
The truth is that M&S lost its flare for fashion a long time ago. On the rare occasions I venture into its clothing sections I despair — even its Oxford Street store remains locked in the 1970s. Yet respected head of womenswear, Francis Russell, appears to have been a victim of office politics rather than a serious attempt to haul the chain into the 21st-century.
M&S needs an utter transformation to ditch its fusty image and attract younger shoppers, but seems too frightened of losing its older customer base to “get down with the youth”. Maybe it should just stick to ready meals.
The Luxury Gap
There is only so much you can charge for a luxury handbag and expect to keep the revenues rolling in and Mulberry Group (LSE: MUL) charged too much.
Management has had to retrace its steps after charging too far upmarket — recent cuts in prices on its leather bags has helped boost sales. But the damage was done, with its most recent full-year figures showing revenues down 9% to £148.7m and pre-tax profits down 87% to £1.9m.
It worries me that management got its market positioning so wrong. Did success go to its heads? The result is that its share price has fallen even faster than its bag prices in recent years. It peaked at £25 in 2012, now you pay just £8.33. Yet it trades at a crazy 428 times earnings.
Analysts remain extraordinarily optimistic, forecasting earnings per share growth of 149% in the year to March, but that still only reduces the P/E to 168 times earnings. Mulberry has averted a complete fashion disaster, but it still isn’t my bag.
