If reports are to be believed, Burberry (LSE:BRBY) will soon be joining the FTSE 250.
That’s because its share price tanked in July after the company gave a trading update for the 13 weeks ended 29 June 2024. Like-for-like sales were down 21%, compared to the same period a year earlier. Japan was the only territory in which revenue increased.
Of further concern, the company warned that this trend had continued into July, and if it were to persist an operating loss would be recorded for the first half of its current financial year. As a precaution, the board decided to suspend the dividend.
What worries me most is that its share price started to fall long before this bad news was released. As recently as April 2023, the company’s shares were changing hands for 2,609p. Today (2 September), I could buy one for 668p.
But I don’t want to.
The company’s shares look cheap — they’re trading on a historical price-to-earnings ratio of less than 10 — and its recently-appointed chief executive has an impressive CV. But I fear there could be more bad news to come.
It’s a sad decline for an iconic Britsh brand that’s been in existence since 1856.
It will now join Dr Martens (LSE:DOCS) and Aston Martin Lagonda (LSE:AML) in the second tier of listed companies.
Both of these have also seen better days.
Too big for its boots
In April, Dr Martens issued its fifth profits warning since the company’s IPO in January 2021. Its share price has fallen over 80% since then.
Due to lower demand in the US and inflation, it warned that — in a worst-case scenario — profit before tax for the year ending 31 March 2025 (FY25) could be one-third of its FY24 level.
To offer a glimmer of hope to shareholders, the company added: “there are also scenarios where the profit outturn could be significantly better than this”.
But there’s too much uncertainty for me to want to part with my cash.
Although an iconic brand, the company appears to have lost its way. Price increases have taken its products away from their working-class roots. In fact, some of its boots retail for more than £200.
In an effort to reverse its decline, the company decided to change its chief executive. And it’s embarked on a cost-cutting programme.
But until it can convince me that it’s selling footwear that people want — at a price they’re happy to pay — I’m going to sit this one out.
Intensity. Driven.
Aston Martin Lagonda was formed in 1947 after the merger of two famous car companies. Since then, it’s seen several changes of ownership, which could be a sign that nobody knows how to make it profitable.
The company made its stock market debut in October 2018. In each of its 2019-2023 financial years, it recorded a loss. During this period, its accumulated losses before tax were £1.24bn. That’s slightly more than the company’s current market cap.
Despite this, Aston Martin produces beautiful cars and has won several ‘coolest brand’ awards. And its prestigious customer base includes the likes of the Royal family and James Bond.
But the inevitable outcome for a company’s that’s persistently loss-making will be a need to raise more cash. For this reason alone, I don’t want to invest.
