Burberry Exits FTSE 100 Amid Sales Decline and Management Overhaul
London — British luxury fashion house Burberry Group has been removed from the U.K.’s FTSE 100 stock market index, slipping into the FTSE 250 during September’s quarterly rebalancing. This marks the end of its 15-year tenure in the FTSE 100, according to index provider FTSE Russell. The changes will take effect from September 23, following their implementation at the close of trade on September 20.
This demotion adds to the challenges facing the 168-year-old retailer, which has struggled with declining sales and frequent changes in management. Burberry’s share price has plummeted more than 53% this year and is down around 70% over the past 12 months. The company’s current market capitalization of £2.34 billion ($3.06 billion) places it below other FTSE 100 constituents and some top performers in the FTSE 250. Consequently, funds invested in the FTSE 100 will exit their Burberry holdings.
Reviving Burberry’s Brand
Burberry’s struggles are not new. Founded in Basingstoke, England, in 1856, and listed on the London Stock Exchange in 2002, the brand gained international recognition for its trench coats, handbags, and iconic check print. Its inclusion in the FTSE 100 in September 2009 was seen as a testament to its enduring appeal, even during the global financial crisis. However, the brand’s high-end image suffered as its iconic pattern became popular among the British working class in the 1990s and 2000s.
Efforts by successive CEOs to restore Burberry’s upmarket status have been largely unsuccessful. Frequent leadership changes, with four CEOs in the last decade, have left investors uncertain. The recent appointment of Joshua Schulman as CEO in July is seen as a potential turning point. Schulman, formerly CEO of Coach and Michael Kors, may shift Burberry’s strategy towards a “British Coach” approach. This could involve cost reductions, expanding outlet presence, and increasing off-price retail exposure.
Future Prospects
Luca Solca of Bernstein suggested that Schulman’s strategy might offer a much-needed boost to Burberry’s financials. The company reported a 21% drop in first-quarter comparable store sales in July, leading to its third profit warning in 12 months and suspension of dividend payments. Analysts, including RBC’s Piral Dadhania and Richard Chamberlain, caution that further share price declines could occur without significant changes.
Solca also noted that Burberry could become a takeover target if the new leadership fails to turn around the company’s fortunes. Conversely, if Schulman’s strategy succeeds, the likelihood of a takeover could decrease.
Luxury Sector Challenges
Burberry is not alone in facing difficulties. The broader luxury sector has been hit by a prolonged downturn in consumer spending, inflationary pressures, and economic uncertainty. Chinese luxury consumption has been particularly affected. In July, Hugo Boss lowered its full-year guidance due to declining sales in the U.K. and China, while Kering, owner of Gucci, issued a weak forecast due to decelerating growth in China. LVMH also reported a revenue drop in the second quarter, largely due to weaker sales in Asia, excluding Japan.
However, some luxury brands, especially those in the ultraluxe segment, have fared better. Cartier owner Richemont reported record full-year sales in May, and Hermes saw a 13% increase in sales during the second quarter.
Looking Ahead
Cole Smead of Smead Capital Management suggested that Schulman might also take on the role of chairman to streamline decision-making and restore investor confidence. While such a move is uncommon in the U.K., it is relatively normal in the U.S. Smead also proposed an overhaul of the board to reassure investors.
Despite current challenges, Smead believes Burberry has the potential to return to the FTSE 100. He expects the company to address its issues more promptly than other luxury players but doubts that fresh leadership will reinstate its large dividend given past payment decisions.
