Burberry and the quarterly quandary

Daniel Lane
Daniel Lane
Fidelity Personal Investing12 July 2018

This week’s trading update from Burberry saw like-for-like revenues climb by 3% in its first fiscal quarter. Growth in the fashion house’s Asian and American divisions made up for weaker sales in the UK and Europe, with the company warning that a stronger pound and euro will continue to make the regions less attractive for Chinese tourists.

Chinese consumers can account for 40% of the mac manufacturer’s sales, so when currency movements put them off travelling the company knows about it. As sterling has begun to recover since its post-Brexit decline, customers have swapped Britain for Hong Kong, South Korea, Japan and mainland China, boosting the firm’s Asia Pacific sales.

It won’t come as a surprise that a strengthening currency is putting off buyers of luxury goods. Burberry’s new belt bag starts at around £1,400 so any movement in the pound really does have an effect, especially if you’re buying three or four of them as many of the company’s Eastern fan base do. And it’s probably not news that trench coat sales haven’t shot the lights out in the 13 sweltering weeks to the end of June.  So, what are the numbers in this quarter’s update that we can really dig into? I’m not that sure, really.

Quarterly updates and results are the norm now but it’s worth questioning how useful they are when it comes to informing investment decisions and best business practices. As a company that sees clear seasonality in trading patterns, Burberry is a good example here. Having been around since 1856 it’s pretty evident the business knows how to constantly evolve in their long-term strategy so is it in anyone’s best interests to make them defend their actions every few months? And if that seems over the top, the company saw its shares fall 4.5% yesterday on the back of flat sales of £479m and a mixed regional picture.

The long and the short of it

More broadly, business heads can be forced into short-termism to satisfy the market’s expectations for the next three months, rather than devoting time to the long-term direction of their companies. On the other side, the wealth of information offered to investors every second of every day has turned us into quite a twitchy bunch and it’s not doing us any good.

That’s not to say information is bad, or companies shouldn’t be accountable to their shareholders but reading into short-term figures when a company is under pressure to report them doesn’t seem like the best use of everyone’s time.

Two opponents of the current system of quarterly earnings guidance reports are Warren Buffett and J.P. Morgan’s Jamie Dimon. Both have recently been encouraging public companies to move away from the practice, saying the unhealthy obsession with short-term profits prevents long-term growth and sustainability. Dimon went further, calling out how hard it actually is to predict earnings - which might prompt companies to polish the numbers.

In the end we’re our own worst enemies and the results aren’t the problem, we are - so we often need less impetus to act. We need to remind ourselves of the benefits of investing in the heart of a company, not just the latest percentages. Long-term strategies should be based on facets of the business that aren’t relevant to quarterly statements, so it rarely makes sense to react on the back of them.

For me the most interesting and useful parts of Burberry’s update were the strategic customer engagement plans the company is putting in place. We will start to see frequent and sometimes unexpected drops of new products from September, in much the same way as New York’s Supreme and London’s Palace operate. Again, in a nod to the rising Soho streetwear stars, the company will be collaborating with Vivienne Westwood for a line to launch in December. For a known high-fashion brand to adopt streetwear influences arguably tells us more about its adaptability and long-term direction of travel than numbers which will go out of date before the summer is over.

Five year performance

As at 11 July












Past performance is not a reliable indicator of future returns

Source: FE, 12.7.18, with income reinvested.

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