Burberry share price: down for 12 straight months, is it a bargain?

Burberry (LON: BRBY) share price has imploded and the situation keeps getting worse by the day as concerns about its future remain. The stock has plummeted to 700p, its lowest level since 2010. Most notably, it has crashed in the past 12 consecutive months, breaking a personal record and falling by over 71% from its all-time high.

Luxury spending falls

Luxury goods companies are facing a major meltdown as spending, especially in Asia, continues falling. 

On Wednesday, Kering, the parent company of Gucci, warned that the outlook was not improving. Gucci sales crashed by over 20% as demand in China waned. Kering warned that its operating income could fall by 30% in the second half of the year.

Kering is not the only luxury major in trouble. Bernard Arnaut’s LVMH said that its total revenue rose by just 1% to 20.98 billion euros. Analysts were expecting its revenue growth to be in the range of 3%.

LVMH noted that most of the slowdown happened in Asia, where sales dropped by 14% in the second quarter. These results led to a big dive in most luxury stocks like Richemont and Hermes. 

Burberry is in a class of its own in terms of weak performance. It has slashed its guidance several times, replaced its Chief Executive Officer (CEO), and suspended its dividend. All these have made it one of the worst-performing stocks in the FTSE 100 index. 

The most recent financial results showed that its sales dropped by 22% in the second quarter to £458 million while its comparable store sales fell by 21%. 

Most importantly, Burberry’s sales are falling in all regions, signalling that there is a problem with its brand. Its Asia Pacific revenues dropped by 23% while its EMEIA and Americas fell by 23% in the quarter. 

The company expects that its business will continue facing strong headwinds this year. It sees its wholesale revenues falling by 21% in H1 and 30% this year. It will also face a currency headwind of about £20 million. In a statement, the chairman said:

Turnaround measures are not working

Burberry’s performance means that its turnaround strategy is not working. In 2022, it brought in Daniel Lee, a well-known executive from Kering’s Bottega Veneta as the chief creative officer. He had also worked for top brands like Celine and Balenciaga. 

However, it seems like his addition to the company has not had a major impact as its sales have continued falling. 

Analysts worry that Burberry’s core issue is the positioning of its brand in the luxury market industry. To a large extent, most highly wealthy people avoid Burberry and focus on other brands like Hermes and Dior.

As we wrote before, Hermes has mastered the art and science of the luxury market by focusing on rarity. Over the years, the company has engineered shortages of its key products like Birkin bags, leading to higher prices and margins.

Burberry’s target market is also highly saturated, with brands like Louis Vuitton and Christian Dior competing for market share. As a result, Burberry’s margins have always been weaker than other companies like Hermes and LVMH.

To be clear: Burberry is not the only British brand going through challenges in the luxury market. Aston Martin, McLaren, and Lotus have all lost market share to the likes of Ferrari and Porsche. Aston Martin’s stock has collapsed while McLaren and Lotus are now owned by foreigners.

Burberry’s turnaround will take time and the company will likely continue facing headwinds in the near term. I believe that a possible strategy would be to execute a sale, implement this turnaround as a private company, and then go public again when conditions improve.

Burberry share price analysis

BRBY chart by TradingView

The ongoing BRBY share price sell-off is in line with my previous forecast. On the monthly chart, we see that the stock has plummeted for 12 consecutive months and the size of the candle is increasing. 

The 25-month and 50-month moving averages recently made a bearish crossover while the stock has dropped below the important support level at 829p, its lowest swing in June 2016. It also formed a death cross on the weekly chart earlier this year.

At the same time, it is hovering near the psychological point at 700p while oscillators like the Relative Strength Index (RSI) and the Stochastic Oscillator have all pointed downwards. The RSI has moved to the oversold level of 24 while the two lines of the Stochastic oscillator is nearing zero. 

Therefore, using trend-following principles, the stock will likely continue falling as sellers target the next psychological point at 600p.

As such, while Burberry stock seems cheap, chances are that it has become a value trap that will continue to underperform in the near term.