FTSE 100
Burberry share price is down by almost 2% as traders wait for disappointing earnings release from the British luxury brand. The shares are trading at 1,534p, which is significantly lower than June’s high of 1,735p. By dropping by 2%, the stock has underperformed the FTSE 100, which is down by about 0.30%.
Analysts expect Burberry to have one of its worst quarter’s since the last financial crisis because of the coronavirus pandemic. As a company that sells non-essential items in retail outlets, the firm was forced to close most of its stores in the first two months of the quarter. In its first quarter results, the firm said that it had closed about 60% of its stores at the end of March.
In that quarter, it had revenue of more than £2.6 billion, down from the previous £2.720 billion. Retail comparable sales declined by 3% while the adjusted operating profit declined from £438 million pounds in Q1’19 to £433 million. Its operating margin fell from 16.1% to 7.2%.
In the quarterly results scheduled for tomorrow, analysts expect the firm’s revenue and profit to fall sharply because of the virus. They also expect it to experience high costs because it continued to pay rent in the stores it closed.
Therefore, since the underlying numbers will be weak, traders will be focusing on the current trends since many cities have reopened. The most important numbers will be from China, its fastest-growing market. In its past results, the firm said:
“However, we currently have 50% of our store network closed and we expect our first quarter (to end June 2020) to be severely impacted with store closures likely to be at or near peak for most of the quarter.”
Still, the firm’s challenges remain. For example, interest in its products was waning even before the current pandemic. Also, its attempts to shift itself to pure luxury brands like Gucci and Dior are facing challenges. Indeed, other firms that have attempted this shift have failed. Think of companies like Michael Kors and Ralph Lauren.
Analysts have mixed feelings about Burberry share price. The most recent rating came from Morgan Stanley, who maintained an equal-weight rating. UBS are extremely bearish on the stock and expect it to drop to 1,015p. These results will come a day after Ocado share pricedeclined after the company made a loss.
A look at the daily chart shows that Burberry share price has been dropping since July 2, when it was trading at 1,683p. The price is along the 38.2% Fibonacci retracement level. By falling today, it has also moved below the 50-day exponential moving averages. Therefore, I expect the price to continue falling as bears target the next resistance level at 1,472p, which is the lowest level since June 25.
On the flip side, a move above the 100-day EMA at 1,586p will invalidate this trend.