The prize for the most hubristic share buyback of recent years goes to Burberry. Only 12 months ago the fashion group was boasting about how it had just completed a £400m buyback, its second of that size in two years. Now, after a stunning collapse in profits, the company can’t even afford to give its shareholders a dividend and the (inevitably) new chief executive is talking about the need to “course correct” and stabilise the business “with urgency”. That 2023 buyback saw stock bought around the £20 level. Price now: 868p. What a waste of shareholders’ funds.
The better news is that 868p was a 19% gain on the day because the new course, described on Thursday by Joshua Schulman, the new man from Coach, read as realistic after predecessor Jonathan Akeroyd’s failed attempt to push the brand relentlessly upmarket. Akeroyd was searching for fatter profit margins but delivered profit warnings.
Schulman still offered the usual fashion industry blah-blah about “celebrating iconic brand codes”, but he was really saying Burberry should remember its roots, which lie in trench coats and outerwear, and stop trying to go head-to-head on prices with the big French and Italian houses in products such as leather goods.
Thus Burberry will still aim to flex its pricing muscle in coats, but the handbags will have to be cheaper than £2,000 a pop – and the collections as a whole will be more timeless. “Over the past several years, we moved too far from our core with disappointing results,” said Schulman. “Our brand expression was focused on being modern at the expense of celebrating our heritage.” Yes, that’s roughly what the fashion critics have been saying for ages.
The relief for the City was that he’s still thinking of Burberry as a “luxury” brand, as opposed to a mid-market label like Coach. That still implies, one assumes, an ambition to get roughly close to Burberry’s wonder years under designer Christopher Bailey, and to hit profit margins in the upper teens percentage-wise.
The bad news is that the turnaround probably won’t be quick. Burberry has fallen a very long way. A half-year pre-tax loss of £80m, on revenues down by a fifth, is a spectacular comedown from a profit of £219m last year. At least Schulman has abandoned Akeroyd’s dreamy visions of achieving annual revenues of £5bn and is talking about £3bn, which ought to be doable since that was the outcome two years ago.
Fund manager Nick Train of Lindsell Train, a longstanding Burberry investor, noted recently that the group’s shares had twice experienced peak-to-trough falls of 70%-plus this century. The last time was after the financial crisis of 2007-08, when people assumed luxury fashion would fall off a cliff. On that occasion, the rebound was a blast: from 160p at the bottom, the price was £16 in 2011 along the way to £26 at the top, 18 months ago.
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Maybe it was progress of that sort that persuaded Gerry Murphy, Burberry chair since 2018, to splurge some winnings on share buybacks at what turned out to be a terrible moment. Whatever the thought process, to go from £400m buybacks to no dividend in the space of 13 months is a shocker. Perhaps he’ll explain all in next year’s annual report – if he’s still there.