Will Burberry Bounce Back?

24-09-24

Burberry has experienced a significant decline. Since April 2023, the stock has fallen from 2600 to around 500, representing a near 80% drop. However, recent developments in China, including potential economic stimulus measures, may present an opportunity for the brand to rebound. Given Burberry’s reliance on Chinese consumers, any positive shifts in China’s economic outlook could contribute to a recovery in its stock performance with China as its largest market, generating around 40% of Burberry’s sales. 

Chinese stocks and bonds saw a significant boost overnight after the central bank introduced new monetary stimulus measures. These include a 50 basis point reduction in the reserve requirement ratio, effectively lowering the amount of cash banks are required to keep on hand.  

This move represents the most substantial stimulus since the pandemic, aimed at lifting the economy out of deflation and steering it toward the government’s growth objectives. However, experts suggest that more fiscal measures will likely be necessary to achieve these goals. 

The stimulus package, broader than anticipated, also includes funding expansions and interest rate cuts, signalling policymakers’ efforts to revive confidence in the world’s second-largest economy, which has recently faced weakening growth data.  

With more money expected to filter into the economy, we could see focus on the stocks of luxury companies, which depend a fair bit on Chinese consumers for revenue. 

Additionally, the plan allows financial institutions such as funds and brokers to access central bank funding to invest in equities, further supporting the stock market. 

Burberry is scheduled to release its next earnings report on November 14, 2024. This will be the company’s interim results for the financial year 2024/2025, following its Q1 trading update that was released in July 2024. 

Burberry also recently made significant changes in its top leadership. In July 2024, Joshua Schulman was appointed as the new CEO, Schulman, an experienced leader in luxury fashion, has previously held key roles at brands such as Michael Kors, Coach, and Jimmy Choo. His arrival signals a shift in Burberry’s strategy after a challenging first half of 2024, which saw underwhelming financial performance. 

Burberry monthly chart, 2005 – present