The start of the second half of the year is usually a good opportunity to establish some new goals. For a company, it can also be the opportunity to push forward for a successful summer and beyond. Unfortunately, Burberry (LSE:BRBY) has suffered a setback in this regard. Due to the CEO being set to move on to pastures new, the Burberry share price fell 9% last week. This made it the worst performing FTSE 100 stock. So should I buy this dip?
The big news
The CEO of Burberry is Marco Gobbetti. He took on the role in summer 2017, succeeding Christopher Bailey. Gobbetti has aimed to continue and accelerate the transformation of the luxury fashion house over the past few years. If I look at the Burberry share price performance since his arrival, I could say that he’s been succeeding.
From a level of around 1,600p back in the summer of 2017, the current share price sits just above 2,000p. This 25% return over four years might not seem amazing, but it’s a positive nonetheless. I think this is even more impressive considering the impact of the pandemic.
So when it was announced last Monday that he was to step down as CEO by the end of the year, it came as a shock to many investors. He’s decided to join another fashion company, Salvatore Ferragamo, in his native Italy to be closer to his family. The impact of this news was the main driver for the Burberry share price moving lower last week.
Clearly, the drop reflects the fact that investors see this as a negative for the company moving into the second half of the year and beyond.
Where does the Burberry share price go from here?
My outlook for the Burberry share price from here is very uncertain. A lot depends on who steps in to fill the role as CEO. I think an internal candidate could be best, as they would know the business better and the transition over the next six months would be easier. If recruitment is external (which the list of mooted names currently doing the rounds in the fashion industry suggests), then six months is really not a lot of time to find and onboard such a person.
The added issue here is that the company still needs to navigate out of the pandemic. In fairness, 2020 results came out better than expected, largely thanks to a strong final three months. This meant that revenue for the year was only down 11% on the previous year. Adjusted operating profit was only down 9%.
This hit was to be expected, due to physical store closures during 2020. Although I don’t anticipate the same level of closures for the rest of 2021, I do think strong leadership will be needed. The Burberry share price will react to trading updates later this year as more information gets released in this regard.
Overall, I think the share price can recover from the slump last week. However, the extent to which it will bounce back firmly depends on how quickly a new CEO is named and who it is who replaces Gobbetti. Therefore, I’m not going to buy at the moment until I get more information.
