Despite a prolonged period of underperformance, Burberry Group (LSE: BRBY) is showing genuine signs of recovery that investors may be too quick to dismiss.
The luxury fashion house has seen its shares fall 55% from April 2023 highs, leaving many questioning whether this represents a genuine bargain or simply a value trap with more pain to come.
Burberry’s decline was not caused by a single misstep, but rather a combination of weak demand across core markets, a bloated inventory position, and years of drifting toward new styles that alienated its core customer base.
Comparable store sales fell by double digits during the worst of the downturn, and the dividend was ultimately axed to preserve cash, dragging the share price down further.
Since those lows, Burberry shares have begun clawing back some ground, though they remain far from the levels seen during the brand’s golden age.
CEO Joshua Schulman’s “Burberry Forward” strategy is now starting to deliver tangible results, with first quarter comparable retail sales growing 5% year-on-year across the business.
The Americas posted growth of 12% while Greater China rose 9%, marking the first time in three years that every product division has returned to growth simultaneously.
Management has doubled down on what it calls “product authority”, leaning hard into heritage outerwear and scarves rather than chasing a broader luxury positioning that had confused consumers and diluted the brand’s identity.
As Schulman put it: “Our strategy is working. We are attracting a broad range of luxury customers across product categories, channels and geographies, reinforcing my confidence in the opportunities ahead.”
Gross margin has also rebuilt sharply to 67.9%, up 530 basis points, driven largely by fewer discounts and tighter inventory control throughout the business.
Combined with £80m of annualised cost savings already banked, underlying operating profits subsequently surged to £160m from just £26m a year earlier, a remarkable turnaround in a relatively short space of time.
Not every region is cooperating with the recovery story, however, as EMEIA sales fell 3% with management pointing at reduced tourist spending tied to the ongoing Middle East conflict.
While the weakness does not stem from any fundamental problem with the Burberry brand itself, it nonetheless highlights the company’s sensitivity to geopolitical shocks and the broader macroeconomic landscape.
If conflict-driven inflation hits key markets like North America, Europe, and China even harder, discretionary spending on luxury products is likely to come under pressure, potentially unwinding recent progress.
This lingering uncertainty goes a long way to explaining why Burberry shares have seemingly stalled over the past 12 months despite the improving operational picture underneath.
For long-term investors willing to look through near-term volatility, the improving margin profile and broad-based regional growth could make the current share price look attractive in hindsight.
Burberry’s brand authority is slowly re-establishing itself, margins are back on the rise, and performance across three out of four of its core regions has returned to positive territory.
The macroeconomic risk remains a genuine concern worth watching closely before committing capital, particularly given the company’s proven sensitivity to shifts in global consumer confidence.
For investors keeping a watchlist, Burberry represents a business in much stronger shape than it was a year ago, even if the share price has yet to fully reflect that underlying improvement.
Whether this ultimately proves to be one of the FTSE 100’s best value opportunities will depend heavily on how the global economic backdrop develops over the coming months.