Two retailers in different spaces have both been well rewarded in opening trades for their most recent efforts.
Burberry
After a recently chequered past, the Burberry (LON:) brand is regaining momentum and a further increase in sales represented the fifth consecutive quarter of improvement since the new CEO was installed.
Group sales increased by 3% in the quarter, compared to a decline of 4% in the corresponding period last year, with revenues up by 1% to £665 million. The growth was boosted by sales in both the Greater China and Asia Pacific regions, where the group has revealed double digit growth in Gen Z customers despite intense competition, which not only is a vindication of the new “Burberry Forward” strategy but is also a promising sign of the brand remaining relevant to a younger generation.
There is also a particular emphasis on the outerwear for which it has become traditionally known, which is currently outperforming expectations. The ongoing campaign to promote the line saw the benefit of extra success during the festive season, with both outerwear and scarves seeing double digit sales growth. By region, declining tourist spend kept Europe flat, but this was more than offset by the growth seen elsewhere, with the Americas adding 2% as well as the notable 6% and 5% rises in those Greater China and Asia Pacific regions.
The outlook comments were optimistic but not cavalier. Burberry fully recognises that the transformation is still in its early stages, and that of course the fashion industry can be a fickle business. At the same time, a brand which had moved away from its traditional British traits of heritage and innovation, which had such appeal to overseas buyers and particularly tourists with an aspirational and stylish look, still needs to be reestablished.
The currently proposed European tariffs announced by the US have weighed in particular on luxury fashion stocks, taking some of the shine from Burberry’s performance of late. The shares have nonetheless risen by 25% over the last year, as compared to a gain of 18.5% for the wider FTSE100, enabling the group to rejoin the premier index in September. However, they remain down by 48% over the last three years, which gives an indication of the mountain Burberry still needs to climb. As such, investors remain ready to accept but are not yet fully convinced of a sustained recovery, with the market consensus coming in at a hold, albeit a strong one. However, it is eminently possible that this upgrade could tip the balance in moving the general view higher.
Currys
Hopes were running high leading into this update, and Currys (LON:{{14023|CURY}}) has delivered in spades, with a glowing performance over its peak trading period leading to a profit guidance upgrade.
A particular highlight was the contribution from the Nordics business, previously a material thorn in the side for the group, given that it accounts for 41% of overall revenues. A 12% spike in like for like sales built strongly on the cautious turnaround which was in place, with the omnichannel offering hitting the spot with a 42% rise, albeit from a lower base.
The rest of the group’s business is in the UK & Ireland, and while Sainsbury-owned Argos may have struggled in this space over the festive period, Currys has a significantly different offering and delivered a rather different outcome. Like for like sales grew by 3%, underneath which omnichannel sales added 11% and recurring service revenues 7%, while mobile subscribers soared by a further 19% to stand at 2.5 million, ahead of the group’s aim, as the pricing point offered clearly resonated with the more cost-conscious consumer.
Indeed, the strategy to target higher margin revenue streams is bearing fruit, and also brings recurring income, such as its mobile plans, Care and Repair, credit provision and protection plans. The group’s omnichannel offering continues to bear fruit, and indeed two-thirds of customers prefer to shop in store, partly as a result of the expert advice available on a face-to-face basis. This can also lead to a longer relationship with the customer as well as the potential of cross-selling.
Of course, Currys cannot guarantee an unfettered run in growing its business. Quite apart from the ongoing repair work being undertaken in the Nordics, the outlook for the economy is currently unstable, which could crimp consumers’ propensity to spend, especially on discretionary items such as computing. Even so, the group has upped its guidance for adjusted pre-tax profit for the year from a previous £170 million to a range of between £180 million and £190 million, which would represent growth of between 11% and 17%. It also expects to end the year with more than £100 million in net cash, which should enable shareholder returns to continue, such as the £50 million share buyback programme which is currently in progress.
The price may have drifted over the last few months as the retailer has been caught up in some of the negative updates coming from elsewhere and lower consumer confidence, but this update has led to the shares flying out of the traps. It adds to a price hike of 38% over the last year, as compared to a gain of 11.5% for the wider FTSE250, and the shares are now some 160% up over the last two years. Even the strength of this performance has not diminished appetite for the stock, with the market consensus of the shares as a strong buy holding firm.