I get a kick from buying a beaten-down UK share that looks oversold and ripe for a recovery. Sometimes though, I just get a kicking.
That’s the case with luxury fashion house Burberry Group (LSE: BRBY). I bought its shares on 15 May, after a profit warning sent them into a nosedive. They traded at 1,156p at the time, down 54% from a peak of 2,516p two years earlier.
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The Burberry share price kept on falling, so I bought more shares on 30 May at 1,042p and again on 3 July at 857p.
Burberry is a ‘crashing’ bore
Today, they’re down to 692p, leaving me with a 36% loss. It’s by far the worst performer in my portfolio (thankfully). The board axed its generous dividend last month, so there’s no consolation on that front either.
This has driven home an old lesson. One profit warning is often followed by another. It’s best to let the dust settle before diving in.
But the shares appear to be settling. They trade at a 52-week low, having plunged 68.24% in that time, but have shown flickers of life. Should I give them another go?
Burberry has been battered by slowing demand across the luxury sector, notably in China, but also in the US, Europe and the Middle East. This isn’t purely a sector issue though.
The group got its brand positioning wrong. It’s tried targeting the very top end of the luxury sector, but keeps getting dragged down by the wrong sort of people wearing its famous Burberry check.
It’s also struggled to strike the right balance between promoting its classic British heritage and drawing a younger, more diverse audience. In doing so, its identity has got all muddled up.
Burberry cut a dash with its early efforts in digital marketing and e-commerce, but has slipped as recent campaigns misfired. If the Burberry marketing team doesn’t know what it stands for, how can consumers? Let alone investors.
FTSE 250 recovery play
Former Michael Kors and Coach boss Joshua Schulman is now tasked with turning things around. Burberry is cutting costs and going back to basics, focusing on its signature trench-coats and scarves. That’s what companies do when they’ve lost their way.
Yet it faces a tough juggling act as it battles to connect with its core base while building a new one as the global economy wobbles.
Burberry must begin its revival from the FTSE 250, where it’s set to reside from September after 15 years in the FTSE 100.
Today, the shares look cheap at 9.35 times earnings. I once considered buying at 24 times earnings. So at least I dodged a bullet there.
Chair Gerry Murphy reckons Burberry will “start to deliver an improvement in our second half”, and if he’s right, the recovery could kick in. I’m tempted to average down again, but I’ll try to restrain myself. I’ve thrown a lot of money at this stock. I’ll need more evidence that Burberry is on the mend before throwing more at it.
