Burberry runs in London, better than expected ebit and more savings on the way

(Il Sole 24 Ore Radiocor) - Better-than-expected operating margins are pushing up Burberry's share price on the London Stock Exchange, after the company also announced 1,700 job cuts and says it is starting to see glimmers of relief after the crisis that has hit the entire luxury sector.

Analysts at Morgan Stanley raised Burberry's target price to 875 pence from 825, with an equalweight rating. Barclays (underweight with tp at 720 pence) points out that ebit was better than expected and that there are 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. Adjusted ebit for the second half was £67m, more than offsetting the first-half operating loss of £41m, despite the promotional activities conducted in the third quarter, Barclays analysts point out.

In the fourth quarter, the comparable retail sales growth was -6%, compared to a consensus of -7%. By region, Asia Pacific was the weakest region at -9%, including Mainland China at -8%, bringing the full-year decline to -15%. The EMEA (Europe, Middle East, India and Africa) and Americas regions both recorded a -4% decline in the fourth quarter. Burberry estimates further cost savings of £60m, bringing the expected total to £100m by 2027. The group said it plans to cut around 1,700 jobs globally, continuing restructuring in the context of a broader crisis that is plaguing the luxury sector.