Burberry races in London, better-than-expected EBIT and more savings to come

(Il Sole 24 Ore Radiocor) - Better-than-expected operating margins are pushing Burberry shares higher on the London Stock Exchange, after the company also announced it would cut 1,700 jobs and says it is starting to see some hope after the crisis that has hit the entire luxury sector.

Morgan Stanley analysts raised their price target on Burberry to 875p from 825p, with an equalweight rating. Barclays (underweight with a TP of 720p) said EBIT was better than expected and there were further savings to come. Overall, total sales reached £2.4bn, in line with consensus estimates. Adjusted operating profit reached £26m, implying an EBIT margin of 1%, or 90 basis points above consensus. Second-half adjusted EBIT was £67m, more than offsetting a first-half operating loss of £41m, despite promotional activity in the third quarter, Barclays analysts said.

In the fourth quarter, comparable retail sales growth was -6%, compared to a consensus of -7%. By region, Asia Pacific was the weakest at -9%, including mainland China at -8%, bringing the full-year decline to -15%. Emeia (Europe, Middle East, India and Africa) and the Americas both saw a -4% decline in the fourth quarter. Burberry estimates further cost savings of £60m, taking the expected total to £100m by 2027. The group said it plans to cut around 1,700 jobs globally as it continues its restructuring amid a wider crisis affecting the luxury sector.