Burberry share price sinks as retailer unveils move upmarket

Shares in Burberry (LON:BRBY) have tumbled about 10 percent in today’s session, as the luxury goods retailer unveiled plans to shift further upmarket under new chief executive Marco Gobbetti, with the move set to trigger higher restructuring costs. The news comes after the company recently announced that Christopher Bailey will step down from his role as president and chief creative officer next year.

As of 10:11 GMT, Burberry’s share price had given up 10.73 percent to 1,772.00p, underperforming the benchmark FTSE 100 index which is currently 0.05 percent down at 7,525.78 points. The group’s shares nevertheless remain more than 23 percent up over the past year, as compared with a near nine-percent rise in the Footsie.

Strategy update

Burberry announced a strategy update this morning, unveiling plans to “establish position firmly in luxury”. As part of the new strategy, the blue-chip retailer plans to ‘rationalise’ non-luxury wholesale and retail doors, will refurbish stores and enhance its luxury service. The company will further look to attract customers with new luxury leather goods and accessories.

“By re-energising our product and customer experience to establish our position firmly in luxury, we will play in the most rewarding, enduring segment of the market,” the group’s new chief executive Marco Gobbetti commented in the statement.

Reuters noted in its coverage of the news that the retailer’s chief financial officer Julie Brown had told reporters that total restructuring costs would increase to £110 million, from £60 million previously.

“Burberry’s premium valuation already discounts an overly optimistic view on brand turnaround potential, of which visibility is still limited,” Bank of America Merrill Lynch analysts led by Ashley Wallace said in a note, as quoted by Bloomberg.

Half-year results

Burberry updated investors on its half-year performance in a separate statement, reporting that its underlying revenue had climbed four percent to £1.26 billion, while adjusted operating profit had come in 17 percent higher at £185 million.

The company further reported that its free cash flow had climbed to £171 million during the reported period, from £75 million a year ago, and lifted its payout to shareholders five percent to 11.0p. 

As of 10:42 GMT, Thursday, 09 November, Burberry Group plc share price is 1,792.00p.