A commentary from Sean Peche, Portfolio Manager at Ranmore Fund Management. Sean and his team monitor several global sectors, including luxury brands. Recently, they’ve been monitoring Burberry Group plc (LON:BRBY), which has been making headlines after reports that it is cutting hundreds of jobs, sales have fallen 21% year-over-year in the first quarter, and it will suspend its dividend.
On the heels of earnings, the company also announced it is ousting its CEO, Jonathan Akeroyd. The market has not responded kindly. Burberry's stock is down 24% since the news and 49% so far this year.
Sean Peche , Portfolio Manager at Ranmore Fund Management , comments, "As a value guy, I’m scared of high prices, and so I have always struggled with luxury goods companies. I guess I’m not sure I’d look good in a Burberry Bucket hat.” “And at £320 a piece, I am not about to "check" " but Luxury goods companies are quality businesses founded hundreds of years ago with wide moats.
” “Yes, but many Banks pre-dated them, and it’s much easier to launch a luxury brand today than a bank. Now I agree that many “have been” quality businesses (past tense) - Burberry enjoyed average Gross margins of 69% and ROEs of 22% over the past 10 years.” “But those variables haven't stopped the share price from falling 72% since April ‘23 highs to 13-year lows.
Things change, and we want to be alert to change.” “So, yes, they WERE outstanding businesses when interest rates were low, .