London, United Kingdom – July 16, 2020: Burberry store front on the famous New Bond Street. (Photo by Dave Rushen/SOPA Images/LightRocket via Getty Images)
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London—British luxury fashion house Burberry Group Exit UK FTSE 100 Stock indexes rose on Wednesday as falling sales and a series of management changes added to growing pressure on the 168-year-old retailer.
The company entered the FTSE 250 during September's quarterly rebalancing, index provider FTSE Russell said in a report statementending the 15-year run of the UK's large-cap FTSE 100 blue-chip index.
These changes will be implemented at the close of business on September 20th and will become effective on September 23rd.
The downgrade is a fresh blow for Burberry, which has seen its shares fall sharply in recent months as the brand has fallen out of favor with consumers amid a broader slowdown in the luxury goods market.
The stock has fallen more than 53% so far this year and is down about 70% in the past 12 months.
The company's current market capitalization is £2.34 billion ($3.06 billion), well below other companies FTSE 100 index constituent stocksand some The best performing company in the FTSE 250 index. As a result, funds investing in the FTSE 100 will exit their Burberry holdings.
Reviving the brand Burberry
Burberry was in trouble long before its recent share price decline.
Founded in Basingstoke, England in 1856 and listed on the London Stock Exchange in 2002, Burberry is internationally renowned for its iconic trench coats, handbags and its namesake line of plaid prints.
The luxury brand's inclusion in the FTSE 100 Index in September 2009 was further evidence of its enduring appeal and resilience, even during the global financial crisis.
However, the gradual adoption of Burberry's signature patterns by the British working class in the 1990s and 2000s dealt a heavy blow to the brand's high-end aesthetic, which the brand has struggled to recover from.
Burberry check lined trench coat paired with a jersey jogging set.
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Successive CEOs have tried to revitalize the company's image and promote it as a premium brand, but the market isn't convinced. High turnover in senior leadership — four CEOs have taken over in the past decade — also makes investors nervous.
Joshua Schulman was named CEO in July, signaling a change in direction.
Luca Solca, managing director and head of global luxury goods at Bernstein, said the former Coach and Michael Kors chief executive may try to revive the company's fortunes by shifting focus from brand enhancement to a “British Coach” strategy. This will include reducing costs, doubling down on investment in dealerships and increasing exposure to discount retailers.
“We promote a 'British Coach' strategy. The appointment of MK and former Coach CEO Josh Schulman appears to be heading in that direction,” he told CNBC via email.
Burstein reckons the new approach could provide a much-needed boost to the company's troubled finances. Burberry reported Comparable store sales fell 21% in the first quarter of July, prompting it to issue its third profit warning in 12 months and suspend dividend payments.
Analysts are now warning that shares could be expected to fall further without a major reset. “Current trading trends suggest Burberry's ) brand's brand momentum is weak, and we believe this needs to be addressed quickly so that Burberry can stem further market share losses.
Solca said that could make the company a takeover target. However, if leadership changes the way it works and the stock price recovers, he said, “an acquisition becomes less likely.”
Dilemma of the luxury goods industry
Schulman will update his strategy in November, and further changes at the top are expected before then. The fashion brand is reportedly working with a headhunter to replace its chairman Gerry Murphy. According to Sky News.
Burberry did not immediately respond to CNBC's request for comment on the report.
Cole Smead, CEO of Smead Capital Management, suggested Schulman could also take on the chairman role so that he could quickly implement his strategy and restore investor confidence. This practice is not common among UK companies, but is relatively normal in the US
“It would be a waste of the board's time to go out and find a suitable chairman when Mr Schulman really needs to work hard for shareholders,” Burberry investor Smead said in an email. In a separate report, he recommended an overhaul of the entire board to appease investors.
Pedestrians walk past the window of the British fashion brand Burberry store in central London on September 2, 2024.
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Burberry is not the only brand whose fortunes are declining. The entire luxury goods industry has suffered from a prolonged slump in consumer spending due to inflationary pressures and broader economic uncertainty. Luxury goods consumption in China has been particularly hard hit.
July, Hugo Boss The Gucci owner cut full-year guidance after reporting lower sales, particularly in the UK and China. dry The company issued a weak forecast as a “significant slowdown in China's economy” weighed on first-half revenue. LVMH Second-quarter revenue also fell due to weaker sales in Asia, excluding Japan.
Some players, primarily in the ultra-luxury segment, have managed to weather the storm. Richemont, the parent company of Cartier, announced that its full-year sales in May hit a record high, and Hermes sales increased by 13%. Season 2.
Smeed said the slowdown showed the cyclical nature of the luxury goods industry – a factor often overlooked – but also showed Burberry's continued recovery opportunities.
“As the saying goes, if you want to fall behind, fall behind early. Burberry fell behind early and we believe they will solve the real problems earlier than other luxury brands,” he said.
Smead added that he expected the company to eventually return to the FTSE 100, but that new leadership was unlikely to reinstate its hefty dividend given a “lack of vision” for early payouts.
Burberry's half-year financial results will be released on November 14.