For more than a year, the Burberry (LSE: BRBY) share price has been one of the weakest in the FTSE 100 index.
But this morning (15 July) it plunged further and is down by more than 15% as I type.
Change at the top
Today’s first-quarter trading update drove the move lower, and the luxury fashion brand owner also announced a fast change of chief executive.
Could this be a final drive to the depths for Burberry? Is it possible the business may now finally start to turn itself around?
Sometimes a new broom can sweep clean.
Burberry said Jonathan Akeroyd is stepping down as chief executive and “leaving the company with immediate effect”.
American national Joshua Schulman is coming in as the new chief. This is a fast switch. Schulman will start at Burberry on 17 July — just two days from now.
The directors reckon Schulman has a track record of “driving transformative growth and value creation” as a chief executive of global luxury, fashion and retail businesses.
I reckon every bit of that experience, talent and drive will be needed if Schulman is to get Burberry off its knees.
Dire figures and a flicker of hope
Today’s trading update is a car-crash of painful reading.
In the 13 weeks to 29 June, comparable store sales plunged by 21% year on year.
Burberry’s chair, Gerry Murphy, said the performance is “disappointing”. The firm’s quick move with “creative transition” is proving more challenging to execute than expected.
Previously highlighted weakness has “deepened”. If the negative trend persists in the current quarter, Murphy expects an operating loss for the first half.
The dividend is toast. It’s been suspended “in light of current trading”. But Murphy reckons the company is taking “decisive” action to rebalance the product range so it appeals more to Burberry’s core customers, while still delivering newness.
I know the luxury markets have been tough lately for many firms operating in the space. But Murphy’s comments make it sound like Burberry has maybe gone too far and too fast with innovation. Has the company dropped the ball and become out of synch with what customers want?
There’s a long history of retail businesses of all stripes hitting trouble by getting their product pitches wrong. Maybe Burberry has joined that group — at least for a while. The situation is a clear ongoing risk factor for Burberry shareholders.
However, I’m optimistic. Burberry has identified its problems and made changes. Perhaps this is as bad as it gets, and the stock may become a decent turnaround and growth proposition from where it is now.
An optimistic outlook
Looking ahead, Murphy expects an improvement in the second half of the year and better times ahead beyond that.
Meanwhile, City analysts predict a rebound in earnings next year. So, with the share price near 750p, I reckon this is good time to tune in to Burberry with a view to considering the stock as a potential long-term recovery and growth play.
